Those approaching retirement today have many more opportunities and challenges to face than their parents ever did. There are also many more ways to fund retirement, adding to the confusion about how to best prepare for all your needs.
We all know it’s important to plan for retirement, but many of us are still not planning well enough. Despite all the media headlines and Government initiatives, many of us still have a ‘tomorrow will do’ attitude. This is worrying for one simple reason – we are going to live longer than most of us think.
The 20th century brought the fastest acceleration in life expectancy of any period in history. In fact we can now expect to live more than twice as long as our descendants of 200 years ago.
Statistics show just how far we’ve come. For example, if you’re aged 60 today, you have more than a one in three chance of making it to age 90 if you’re male, and nearly a one in two chance if you’re female.*
Knowing our chances of living to our late 80s and beyond leaves us with one fundamental question – will we have enough money to enjoy the lifestyle we desire for what could be 30 years or more after we stop work?
Some of us are planning our pensions. But few of us plan for ‘late retirement’. This is a period from our mid-70s and onwards, when our expenses can rise faster than our pension income can keep up with. This can happen for various reasons. It could be because we need more help around the home or even that we require nursing care.
And then there are unexpected expenses like replacing the roof, health care, or financial help for our families.
But these days it’s just as likely to be because they are continuing to lead a more active life through travel, work or leisure.
And don’t forget our old enemy – inflation. It continually eats away at the value of our money over time. The chart below shows a typical financial life cycle, with the “late retirement” period heralding the most serious gap in a client’s personal finances.
The true cost of retirement
Life Trust Insurance recently reported that the cost of retirement for someone who retires at 65 and lives to 100 could be as much as £1.55 million for someone currently earning £50,000 or over**
Their research shows that traditional annuity products are unlikely to be sufficient for retirees’ to enjoy a decent standard of living in their “late retirement” years. The choices for some people are likely to be stark – sell their precious assets like their home or live out their final years in penury.
This problem has been at the root of much of the recent innovation in the retirement market and getting sound financial advice throughout the different stages of retirement will help identify which products can help you achieve income you need.
Although it may seem a long way off, making robust financial plans now for late retirement will give you the peace of mind to enjoy your early retirement years - safe in the knowledge that you will be able to live the lifestyle you desire further down the line.
*Source data: PMA 92 and PFA 92 mortality tables, published by Continuous Mortality Investigation Bureau (CMIB) of the Institute of Actuaries and the Faculty of Actuaries. They are based on the experience of pensioners in UK insured pension arrangements.
** Life Trust Cost of Retirement Report, July 2008. Source data for report, Office of National Statistics