How long might your retirement need to last and are you prepared?

Published on February 16, 2024 by Andrew
A woman holds a document in one hand and uses a calculator in the other.

You likely have retirement dreams you’ve been saving for since you first entered the workplace. Perhaps you want to travel the world or fulfil lifelong ambitions at home. Maybe you want to have more time to relax and see your grandchildren grow up.

But with life expectancy continuing to rise, have you considered what you will do if your retirement is longer than expected?

A recent study compiled by IFA Magazine revealed that 68% of Brits have not thought about how many years of retirement they might need to fund.

58% of those surveyed said they expected to retire between 65 and 69. So, with Office of National Statistics (ONS) figures showing that life expectancy has been rising for decades, your pension fund may need to last for three decades or more. You might also have to cover care costs in later life.

The minimum pension age is rising

The Department for Work and Pensions (DWP) 2017 review of the State Pension Age notes that when it was first introduced in the UK in 1948, the average 65-year-old would have lived around 13 years in receipt of it. Over half a century later, in 2007, the average 65-year-old could expect to live for around another 21 years. This rising trend is likely to continue.

Indeed, in 2028, the minimum pension age is set to increase from 55 to 57. This will mean that you can’t access your pension before age 57 (without incurring significant HMRC charges), unless certain conditions apply, like ill health or a special occupation.

According to the ONS life expectancy calculator, the average 57-year-old man in 2028 can expect to live to the age of 84, and the average woman of the same age will live to 87. They have a 1 in 4 chance of reaching 93 and 95 respectively.

This means that 1 in 4 people who choose to access their pension at the minimum pension age will need it to last nearly four decades. And if you are a woman who chooses to retire at 57 in 2028 you will need your pension to fund 30 years of retirement on average.

The State Pension Age is currently 66 for both men and women. This is due to rise to 67 from April 2026 and then to 68 in 2044. However, the DWP regularly reviews the State Pension Age to ensure it is affordable and fair.

Preparing for your retirement

As we have seen, your retirement may last longer than you thought it would when you first started work in your 20s. But that doesn’t mean you can’t still live your dream lifestyle when you finish your career.

But how should you prepare for a retirement that might last 30, or even 40, years?

Plan when to retire

Planning when to retire can help you to establish how long your savings will need to sustain you. The earlier you start making plans for your retirement, the better prepared you will be.

You should consider:

  • How much income you’re likely to want in retirement
  • How much you can save in the time between now and your planned retirement age
  • How much you have saved already
  • For how long you are likely to receive your pension.

Although there is no way to know exactly how many years your savings will need to last, current life expectancy averages can give you a rough indication.

You can then consider whether your current planned retirement age aligns with your saving goals or whether you need to revisit your plans.

Delaying your retirement by just a few years can significantly boost your pension savings, especially if you have paid off your mortgage and your children have left home. So, it could be worth pushing back your planned retirement age if it makes financial sense.

Think about how much money you will need in retirement

The other key factor to consider is how much money you will need in retirement.

In addition to making a budget for your general outgoings, you should also factor in any one-off costs, such as trips you have always wanted to take or money you may want to set aside for your children or grandchildren.

And, on top of that, you should consider the cost of later-life care. The cost of care in the UK is high, and with rising average life expectancy, you’ll also need to consider your “healthy life expectancy – the years you can expect to live in good health.

Either you or your partner may need care in your later years, whether in a residential or nursing home, or in your own home. Care Home currently puts the average weekly cost of a residential care home in the UK at £760, and the average nursing home at £960 (that’s £39,520 and £49,920 a year respectively).

When you work with us, we can use cashflow modelling to estimate what your future finances will look like.

We can evaluate your income, assets, and liabilities, and factor in things like your retirement age, inflation, life expectancy, and investment growth. This helps you see, in black and white, what your finances might look like in the years to come. You can then implement any necessary changes to your current lifestyle to better serve your retirement.

Seek financial advice

Our expert team of professional pension planners can help you build a long-term financial plan that factors in longevity and the potential need for later-life care.

Whichever aspect of your long-term retirement plans you need help with, get in touch. Email or call 0800 0787 182.

Please note:

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The Financial Conduct Authority does not regulate cashflow planning.

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