Life expectancy is increasing and while the State Pension age is rising too, the fact is that many of us will spend longer in retirement than previous generations. It means far more opportunities to enjoy life after giving up work, whatever your priorities are. However, it also means retirement provisions built up over your working life will need to stretch further.
Life expectancy, combined with increased flexibility in how you can access pensions, means financial planning throughout retirement is just as important as when you’re working. The benefits of financial planning when you’re working are clear. It can help you manage your income and get the most out of your money with your aspirations in mind. It’s now critical in retirement too.
Why does life expectancy affect this? While we might be living longer lives, few of us want to work longer. As a result, we need to take responsibility for ensuring that money set aside for retirement can support us for several decades.
However, it’s an issue that many of us forget about when planning retirement finances. According to research from the Institute for Fiscal Studies, we often underestimate how long we’ll live for:
- Men born in the 1940s, for example, believe they had a 65% chance of reaching the age of 75. The official estimate was 83%
- For women of the same age, they have an 89% chance of reaching 75 but the estimate was just 65%
The pessimistic view of life expectancy could mean that some retirees aren’t planning their finances to last throughout retirement. There are many ways that financial planning can help overcome this, including:
Taking a sustainable income from your pension
Do you know how much you can sustainably afford to take from your pension each year? If you’re taking advantage of Pension Freedoms to create a flexible retirement income, there’s a real risk that you could run out of money.
As life expectancy increases, your retirement savings will inevitably have to support you for longer. If you haven’t considered how long your retirement will last for, you risk using too much, too soon. Financial planning can help you understand how your wealth will change over time to build an income that will last a lifetime.
Managing your investment risk
In the past, it was common to begin reducing the amount of risk your investments were exposed to as you approached retirement. However, with retirement lasting longer, some are choosing to keep at least a portion of their pension invested. As a result, you may need to take a more active role in your finances.
Taking investment risk in retirement could help your finances continue growing, something that’s becoming more important as your savings need to support you for more years.
Planning for life events
Life events, both the planned and unexpected, can have a big impact on your finances. This continues to be true throughout retirement. Maintaining a financial plan can help you prepare for these.
Understanding how life events will affect your retirement can give you the confidence to make plans. With retirement lasting longer, the likelihood is that you’re going to experience several life events after giving up work and have many financial decisions to weigh up.
Effective estate planning
For many retirees, leaving a legacy for loved ones is important. How much and what you will leave behind may be a question that comes up as you assess your own retirement income. However, when you look at the likely length of your retirement, the inheritance you leave will hopefully be decades away. As a result, your wealth and wishes can change considerably during this time. Remaining engaged with financial planning allows you to plan how your estate will be passed on more effectively.
If you need help with your retirement finances, please contact us. We’ll help you understand how your retirement provisions can be used to support you for the rest of your life, whatever your life goals are.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.. The Financial Conduct Authority does not regulate Inheritance Tax Planning.