Keep your financial health as strong as your body
Modern medicine is an incredible thing. We’re living longer, healthier lives, and celebrating a 100th birthday doesn’t seem as far-fetched as it once was. But while our doctors have allowed us to live longer, our bank accounts don’t know how to keep up.
You may be able to run a marathon at 65, but will your retirement account be as strong as your body?
First, let’s look at the numbers to get a basic understanding of the situation.
Provisional data from Public Health England for 2017 found that life expectancy at birth in England is 83.2 years for females and 79.6 years for males. The older population is growing at the same time as life expectancy, of course. One in every five people in 2017 were 65 or older. By 2037 it will be one in every four. Think of it this way- the UK government had to expand the team sending telegrams from the Queen for centennial birthdays. That’s how much of a boom we’re facing!
Living 20 years or more longer
Your first reaction to the thought of living 20 years or more longer than your parents may be to think that retirement is a pipedream. In reality, you may very well work longer than you had hoped. (Which on the plus side means more money for your pension account!) But working well into your twilight years doesn’t have to be the solution to financial survival.
By thinking about and understanding your finances now, you still have time to make a comfortable retirement plan.
Workplace pension
Of course, you should start saving and investing for your retirement as early as possible. Chances are, your employer auto-enrolled you in a pension plan. If you haven’t thought about your workplace pension since you signed your contract, check it now. ‘Check your workplace pension’.
You may be able to change your investment allocations, or increase your contributions. ‘Take advantage of any employer contribution.’ Make sure you’re taking advantage of any employer contribution or matching programmes.
State pensions and private pensions
Besides the employer pension plans you should also consider the state pensions and private pensions.
Still, while pensions are excellent financial tools, they haven’t kept up with our lengthening life spans, so you may need to think about how much you’re relying on this as a key part of your retirement plan.
Younger workers today should set aside higher portions of their incomes than the last generation did.
Do I have enough for retirement?
And even if you began saving for your retirement years ago, it can be difficult to determine if you’ve saved enough. After all, there are many facets of wealth - house equity, pensions, savings and investments, for instance. Fortunately, there are many metrics and ways to figure out your optimal retirement plan. All you need is a bit of time and patience.
Life expectancy test
Start with a life expectancy test. If you don’t want to visit your doctor, try a free online calculator for example the one from Blueprint Income. It will ask questions about your lifestyle and income to help guess your life expectancy. You may be surprised with the result!
The Pensions Policy Institute found that people aged 55-70 significantly underestimate their chance of living to a later age.
The Pensions Policy Institute found that people aged 55-70 significantly underestimate their chance of living to a later age.
What living standard would you like to maintain during retirement?
Standard of living
Next, think about the standard of living you want to maintain during your retirement. Research by Opinium found that the average income that people can expect is 27% less than the amount they’ll need to be financially comfortable!
- Do you plan on traveling frequently?
- Will you still have mortgage payments?
- Will you be financially supporting your children or grandchildren?
Make yourself a realistic list of your current spending and likely future spending. Maybe you plan on living frugally in your 50s, to give you more flexibility when you hit 70. Everyone has a unique expectation about their standard of living and it’s up to you to determine your own.
Get some help
Don’t forget to utilise professionals. A financial adviser can help you plan, and, importantly, answer questions. If you’re self-employed, your savings and pension track may look completely different from your friends who work for large corporations. And unfortunately financial planning generally only gets more complicated as we get older. If you’re balancing a decision about tapping your home equity or dipping into your pension pot, you may want to consult with a professional first to make sure the timing makes sense for your long-term needs. For instance, you may need to set aside more funds for long-term care than you had initially planned.
In England, the average residential and nursing care costs some £700 to £1,000 per week, respectively.
Maintain your retirement plans
Also, be sure to maintain your retirement plans. It doesn’t matter what stage of life you’ve reached or how much money you have, retirement planning and savings should be constant. Set goals for yourself but be prepared to move the goals and maintain a sense of flexibility as new circumstances come up in life. Have conversations with your friends and loved ones. Often they’re the ones that can share the best experiences and advice.
This article is part of our partnership with Scottish Widows. To learn more about the pension gap and what you can do about it, visit the Scottish Widows Future Hub.