Age is not just a number

The impact of an increased lifespan on your retirement finances

Living to the ripe old age of 100 could require an additional £260,000 in pension wealth to ensure a comfortable retirement, compared to someone living until the current average life expectancy, according to the Office for National Statistics (ONS)[1].

In 2022, the ONS estimated 15,120 centenarians (people aged 100 years and over) lived in England and Wales, an increase of 3.7% from 2021. The number of centenarians has more than doubled since 2002 (including a doubling of the numbers aged 105 years and over from 300 in 2002, to 640 in 2022).

Similarly, those planning a moderate retirement may need an extra £121,000 in pension wealth if they live beyond the average life expectancy. These calculations stem from the 2022 Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards[2].

Retirement living standards and pension pot calculations
The standards suggest that single retirees need a private pension income of £15,383 for a moderate retirement and £32,882 for a comfortable one, assuming they have a full State Pension. Interactive investor computations consider someone retiring at 66 and using income drawdown to extract this income from their pension pot.

Life expectancy significantly influences the size of the pension pot you will need, as those living longer may require a substantially larger pension pot to last throughout their retirement. Despite a slight decrease in life expectancies during the Covid pandemic, the number of individuals over 90 actually increased by 2% in the year leading up to 2022, according to recent ONS estimates.

Modern medicine and pension planning
The advancements in modern medicine are enabling more people to maintain good health for longer periods, impacting our pension planning. With an increasing number of us reaching advanced ages, predicting how long our pension needs to last can be challenging.

Typically, retirees need their pension pot to sustain them for about 17 to 20 years, with women outliving men by an average of three years. However, these are just averages, and many people live beyond 90 years old, requiring their pensions to last significantly longer.

Implications of living until 100
If you live until 100, you might need £260,000 more than if you lived until 83 years old. Running out of money could result in dependence on the State Pension alone, providing only a basic, frugal retirement.

It’s also crucial to account for potential care home costs as part of your retirement planning. The average nursing home now charges approximately £61,000 per year, meaning two years in a care home could cost around £122,000, though home care costs are generally lower[3].

Role of workplace pensions in retirement savings
Fortunately for those still in employment, nearly all workers automatically contribute to a workplace pension, which can accumulate significantly by retirement. Keeping track of your savings and ensuring you’re on course to meet your retirement objectives is essential.

Source data
[1] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ageing/ bulletins/estimatesoftheveryoldincludingcentenarians/2002to2022#population-growth-of-those-aged-90-years-and-over-in-england-and-wales
[2] https://www.retirementlivingstandards.org.uk/
[3] https://www.ons.gov.uk/economy/ inflationandpriceindices/articles/ exploring howtheaverageprice ofindividuali temshaschanged inthelastyear/2023-05-03

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.

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