Why you should be planning for a 100-year life

A new study published in FTAdviser has revealed the startling fact that the number of people reaching the age of 100 is expected to increase by 78% in the next 20 years.

In 2021, 16,000 people in the UK were 100 years old or more. That’s due to increase to 29,000 by 2041.

Some of the key reasons for this include:

• An increased understanding of diet and healthy eating
• Improved lifestyle choices
• Advances in medical technology.

Backing up the research, Office for National Statistics (ONS) data suggests a baby born this year has a 1 in 10 chance of living to 100.

Increased longevity raises issues when it comes to financial planning. Here are seven key considerations when it comes to planning for the increasing possibility of you living to 100.

1. Living longer will have a significant impact on your plans

As you’ve read, it’s becoming increasingly common to celebrate your 100th birthday.

As well as the possibility of a telegram – or the modern equivalent – from the Queen, it also raises challenges when it comes to retirement planning.

Many people plan for their retirement assuming it will last in the region of 20 to 30 years. The ONS life expectancy calculator supports this assumption confirming that, on average, a man aged 55 will live to 84 and a woman the same age will live to 87.

The age at which you decide to stop work will clearly have a big impact on your future finances. By working longer than you may have previously planned, you’ll have more time to grow your retirement fund tax-efficiently. You’ll also benefit from your money staying invested for longer.

2. Planning ahead is essential

As with nearly every major project, you’ll need to have a plan in place when it comes to both your retirement, and the possibility of living to 100.

Your plan doesn’t need to be too detailed at the outset. But it’s important to bear in mind that your specific plans for your retirement will have a key bearing on the size of fund you’ll need.

As you get closer to retirement, the need to flesh out your plans will become increasingly important, and you’ll need to review them at least annually.

Calculating how much income you need in retirement is challenging. Working with an adviser using an effective cashflow forecasting tool will create invaluable insight when it comes to ensuring you stay on track, and that you can make necessary adjustments to your plans.

3. Increased pension flexibility can help your retirement planning

Pension Freedoms legislation introduced in 2015 has added a key layer of flexibility that can really help you when it comes to income planning in retirement.

Such flexibility makes it much easier to put together a phased retirement plan, perhaps gradually reducing your working hours rather than stopping work one day and starting your retirement the next.

This means you might be able to take less, or maybe even nothing at all, from your pension fund. In fact, you’ll still be able to contribute to your fund, although you’ll be restricted in the amount you can tax-efficiently contribute once you start flexibly drawing income.

4. You’ll need to ensure you don’t outlive your money

A key part of your planning will involve ensuring you don’t run out of money in retirement.

How much income you’ll be able to draw from your pension fund, and from other assets you may have, will clearly depend on the size of your wealth and your individual circumstances.

There’s no hard and fast rule for how much income you’ll need. Some key facts to bear in mind are:

• Inflation will affect the purchasing power of your income
• You may spend more in the early years of retirement when you’re more active
• You’ll be able to flexibly plan your income.

As well as your pension fund, you should also consider all the other assets you have that could provide you with income in retirement. These may include:

• Savings and other investments
• Your residential property
• The State Pension
• Other pensions, including final salary schemes, you may have contributed to
• Other property you may own.

5. You need a robust investment strategy

An effective investment strategy will be at the heart of your plans. Your pension fund will very likely form the bulk of the money you live on, so having the right strategy in place will be crucial when it comes to planning for a long and rewarding retirement.

Your investment plan will depend on several factors:

• Your attitude to investment risk
• Other assets you may have to draw on
• Future financial commitments you may have, such as children’s education fees
• The period over which your money will be invested.

You’ll need a balanced plan that carefully weighs your investment strategy alongside your income needs and any lump sums you may need to draw from your fund.

6. Long-term care could be an issue as you get older

Living with illnesses that would previously have been terminal is clearly positive from a longevity point of view, but it does increase the likelihood of spending your later years in poor health.

Again, planning ahead is important, as is being aware of all the options open to you.

It’s likely that you’ll want to live independently for as long as possible. This could be facilitated by adapting your current property or downsizing to somewhere more manageable when you’re older.

The latter option could also free up capital to support your income. It could also provide the necessary finance to provide a domiciliary nursing care package to enable you to retain further independence.

As you get older, there’s an increasing possibility that you’ll need to move into residential care or a nursing home.

The cost of those is likely to be substantial. According to the UK Care Guide, the annual cost of residential care can range from £27,000 to £39,000 – with that figure rising to as much as £55,000 if nursing care is required. You should therefore factor this into your planning.

7. Your inheritance planning will be important

In common with many people, it’s likely that you’ve considered wanting to leave a financial legacy for future generations of your family when you die.

Clearly your planning process will need to create a balance between fulfilling your desire of passing your wealth on, together with ensuring you still have the means to live comfortably in your old age.

Estate planning will therefore be an important element of your financial plan.

Get in touch

If you would like to talk to us about any of the issues you’ve read about in this article, please get in touch and we’ll be glad to help you.

You can email us at enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.