How long does retirement last? The state retirement age was set at 65 for men and 60 for women long before the men and women retiring today were born. They were selected to reflect life expectancy in days of hard manual labour and relatively primitive medical care – when most people could expect to draw their pension for only a few years.
Things have changed. Average life expectancy is now at its highest level ever. Statistically a man of 65 can now look forward to another 19 years, with women of the same age another 21.
Retirement for some people will last as long as their working lives.
Financial planning for living longer
But this excellent news does have a downside. It has a huge impact on the kind of financial planning you need to do to prepare for retirement.
The huge increase in life expectancy has prompted the government’s plans to delay state retirement age. Under the Pensions Act 2011, women and men will both need be 65 to start claiming the state pension by 2018, and this will go up to 66 as early as 2020. This is not meanness on the part of the exchequer. Many more pensioners living very much longer means a very much larger pensions bill.
The government simply can’t afford to fund everyone’s retirement. – but it’s not just the government who are faced with extra costs as the result of greater life expectancy. Living is expensive, even in retirement.
How much more will you need?
Living longer means all of us will have to build bigger pension pots to live comfortably. We may all need to work for longer and pay more into our pensions to stand any chance of enjoying a decent standard of living in retirement.
Yes, State Pension is being increased, but to a standard rate of just £155.65 a week. To look forward to a comfortable retirement, you will want substantially more than that. You’ll still want to run a car and enjoy holidays and evenings out. So you will need a reasonable income. What counts as reasonable? You may need less if you have been able to pay off the mortgage, but an income of around 2/3 of what you earned in your last year of working is something to aim at.
According to an in-depth study of the pensions market, today’s younger workers won’t be able to afford to retire before their mid-80s.
Start planning now
The stark fact is that many of us may not be able to retire at all, but the solution really is simple: stash away as much as you can for your retirement. Start doing it as soon as possible, and make sure you choose the best schemes to make the most of your money.
Remember, your pension is a powerfully rewarding investment. A few thousand saved now should be worth tens of thousands by the time you retire. It could actually mean that you can retire when the time comes.
Perhaps the best thing to do is to get professional help with pension planning without delay. Understanding the opportunities and the pitfalls, and an understanding of liabilities such as lifetime allowance and pension taxation can be as important as working out the best way to maximise returns. Proper financial planning and wealth management can make all the difference to your future, and proper estate planning will make a huge difference to those that you love.
To discuss your pension plans, making the most of your tax allowances, or how to arrange your estate, please contact our our professional retirement team.
The Financial Conduct Authority does not regulate taxation and trust advice.
LEVELS AND BASES OF RELIEFS FROM TAXATION ARE SUBJECT TO CHANGE
The Financial Conduct Authority does not regulate wills, taxation and trust advice.