Will you run out of money before you die? People are living for longer than ever before, retiring earlier and saving less. As we live longer, planning for 100-year lifetimes is an ever-present reality and could become crucial to securing financial wellbeing.
The number of people aged 100 years in the UK increased by 52% in 2020 from the previous year to a new record high¹, and people are continue to live for longer and longer.
With enhancements in living standards and public health over the last century, it is a real possibility that not only our children and grandchildren, but also ourselves, will live long into their and our 100s.
However, the disconnect here is that:
- People are now retiring earlier than ever before. Almost two in five (37%) 2021 retirees have accelerated retirement².
- The ‘cost-of-living crisis’ is significantly increasing the cost of life, with one in five (22%) UK adults reporting that their total household wealth has decreased over the past year³.
- Over the last 40 years life expectancy in the UK has been increasing. People are living for longer.
- This means that your savings and pensions need to last you for longer.
This issue is so serious, that it is not a case of ‘running low’, but a case of ‘running out’. Running out of money in retirement is a genuine concern for many people.
The harsh truth is that this concern is actually more of a reality.
- 60% of middle-earning private sector employees who are contributing to a pension are saving less than 8% of their earnings. ²
- Fewer than one-in-five of the growing number of self-employed workers are saving in a pension. ²
- Higher state pension ages are a coherent response to the challenges of increased longevity at older ages. ²
- Those retiring with defined contribution pension pots face considerable difficulty and risk in managing their finances through retirement.²
However, with careful financial planning, you do not need to run out of money before you die.
Planning for a long retirement, one well into your 100s, is one of life’s many priorities, and as we are living much longer than previous generations on average, this has become top of the list for many. We are all going to spend much more of our later life in retirement, with the idea of what retirement looks like for many people continuing to change.
However, not enough people are doing enough about it.
We all spend money too frivolously sometimes. Imagine this...
Throughout a working career from age 20 to 67, you spend £5 a day on coffee, and £5 a day on lunch.
- Assuming one coffee a day, you would drink over 16,000 cups of coffee
- Assuming one sandwich a day, you would consume over 32,000 pieces of bread
- You would spend £3,650 a year, inflation adjusted, you would spend over £308,000
Ok, so the coffee and bread consumption isn’t what is important here, what is important is the £10 per day. If you, instead of spending that £10 per day, invested it into a pension, with basic rate tax relief, you would:
- Increase your £10 value by 20% instantly, meaning £12.50 is invested into your pension each day
- Compound your savings value over the duration of your career
- Have pension that, with investment growth, could be worth £349,000.
The calculation is based on contributions invested each month, increasing by 2.5% a year, with growth after charges of just 2.4% a year. See more here⁴.
So it is clear that saving into a pension can be a really smart way to invest in your future. But don’t worry if you’re not sure where to begin. And it’s ok to start small if you need to, and gradually build up your retirement savings over time. Getting started is what’s important.
Of course, the key question is always ‘How much should I save’?
It might be difficult to put a lump sum figure on this, as you will need to factor in several decades of inflation. So, it might be easier to start by thinking in terms of having saved multiples of your salary by certain ages, or a percentage of your earnings.
For example, you could target a percentage of your earnings, so perhaps 10% in your 20’s, 15% in your 30’s, 20% in your 40’s and so on.
It might seem next to impossible to save those amounts with all that life throws at you, but don’t forget, it’s not just your contributions going in. You’ll receive tax relief, possibly employer contributions, hopefully investment growth, and the compounding effect of saving over the long term.
So, getting your retirement savings off the ground and starting your savings & pension as early as possible means that you’ll have a better chance of achieving the retirement that you have in mind.
However, it doesn’t end there.
A 100 year life will also require thought and consideration into what happens when you reach a much older age, and what happens with your pensions and assets when you die.
An increasing number of us will need to provide for some form of social care, which will require thinking ahead to understand how this can be paid for, and how it may affect your retirement income. People used to rely on receiving an inheritance, but with older generations also living for longer, this is now deemed to be a risky strategy.
Also, we all want flexibility to choose how our wealth is passed on when we die, and how you use pensions in this regard can have an important part to play in your estate planning.
Having a strategy in place removes much of the stress around subjects that can often be very emotive to discuss, or make decisions on.
It is complex, all of it, from start to finish, from today and into the future. There is no doubting that.
At KWM, we exist to give you the confidence to create the future you want. We also understand that people have little time to manage their finances as effectively as they would like, and if they do, it is a complex space to navigate. Our team of qualified, expert advisers will work with you to develop an appropriate financial plan to match your current circumstances and meet your future objectives.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
²Institute for Fiscal Studies, April 2023
³Opinium, May 2022
⁴Please note that these figures are examples only and are not guaranteed. All monetary values shown have not been adjusted for future inflation. They are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.
These figures are only examples and are not guaranteed - they are not minimum or maximum amounts. What you will get back depends on how your investment grows and on the tax treatment of the investment. You could get back more or less than this.