It is only in modern times that large numbers of people globally have been able to enjoy a stage of life known as retirement. The time from when we stop work and become a retiree has increased significantly in the last 100 years.
In the UK, if we look back to the early 1900s, life expectancy at birth was around age 47 for a man and age 50 for a women. However, back then, a great many people born unfortunately died in childhood. It was only if you survived childhood you had a good chance to live to your 50s or early 60s, but that still did not translate into any length of time in retirement. Since then, living standards have risen substantially and, with the progress in healthcare, nutrition and clean water, life expectancy at birth is now 79 for a man and 83 for a woman. This incredible progress is set to continue, albeit at a slower pace.
This is still someway off the record for the oldest person in the world, who died in 1997 at the amazing age of 122 (Jeanne Calment), but I am not overly convinced that many of us would actually like to live for that length of time given the increasing number of challenges it would bring.
A study of individuals on their death beds asked what they regretted in life. Very few stated that they were disappointed due to anything that they ‘did’ in life. Instead, the regrets were what they ‘didn’t’ do: didn’t holiday enough; didn’t finish work early enough to spend time with the family; didn’t buy their dream yacht; etc.
Okay, it’s easier to look back and realise what could have been possible, but what is key here is hindsight. It would be significantly easier if we could look forward and deal with the difficult question – how long will I live?
If you live in the UK, the Office of National Statistics is a good starting point. The numbers show that if you’re a 60 year old man, your life expectancy is 85. If you’re a woman, it is 87. These are averages, so there is a 50% chance you will die younger and 50% older, but these figures also include some of the poorest in society who, sadly, do die younger. The highest life expectancy is among people who live in Kensington, the lowest is among Glaswegians.
On a percentage basis, the chance of a 60 year old man reaching 100 in the UK is 9.5% whereas, for a woman, it’s higher at 14.5%. Interestingly, this rises further since longevity increases as you age. If a man reaches his 80 birthday, his life expectancy increases to 89. If he reaches 90, it goes up to 95!
When considering a mixed sex couple both aged 60, the chances that one of them reaches 100 is 24% (one in four). So, although there are currently over 14,400 centenarians living in the UK, this is anticipated to rise to over 21,000 by 2030. That’s a lot of cards being sent out by the monarch.
Despite this evidence, many believe we are not going to live for a long time, underestimating life expectancy. This can lead to spending too much of your investments, pensions and savings early on in retirement, leaving too little to enjoy later on in life. And remember it is extremely important if you are married or in a partnership, to consider the survival probability for couples rather than for an individual. Planning using life expectancy rates for one person only may spell financial ruin for the other.
Life expectancy at birth (years) for selected counties
The additional time we now have to enjoy in retirement is great, but what impact could these extra years have on your wealth? A topical factor is inflation, sometimes called the ‘thief that keeps on taking’.
If you have opened a newspaper recently and turned to the financial pages, it is highly likely that headlines will have focused on the increasing inflation figures being published around the world and whether these elevated rates will be temporary or stubbornly remain over a prolonged period.
Over a long time, the compounding effect of inflation can have a significant impact on the real value of your money. For example, an inflation rate of 3% per annum over 25 years erodes the real value of money by more than half!
During your working life and when you are accumulating your assets, the income you’re earning and the inflow of new funds tend to hide the real effect of inflation. So, you only really become aware of its ravages when you have lower levels of income, such as in retirement.
Another major factor is health, many of these additional years may be spent in poor health. While Jeanne Calment is an extreme example, I don’t think any of us assume her last 20 years involved early morning skiing sessions or long holidays. However, what would be needed is a level of income and assets to ensure comfort and a continued enjoyment of life, albeit at a much slower pace.
Daniel Ives, a former University of Cambridge biologist who researches cellular ageing, summed it up succinctly by highlighting that it’s “not living longer but dying longer”. And the level of wealth can contribute to your level of health, with healthy life expectancy at birth differing by 12 years between the best and worst local UK authorities, as an example.
Regardless of whether you end up having an average life expectancy, or you become one of the future centenarians, there are implications. And while those due to underestimating your life are understandable, on the flip side, being too cautious or not maximising use of your various savings and investments throughout your expected life could also leads to regrets. It could mean you’re not living life to the fullest, or you could leave a much larger estate for inheritance tax purposes behind than was necessary.
Whatever age you reach, we can help you plan to meet your future goals and aspirations. Through the use of cashflow planning, we can help determine what finances you are likely to need in early retirement, what should be set aside for a comfortable later life, and what can be gifted to children, grandchildren or charitable causes without the recipients of your generosity having to first wait for your demise.
You never know, a plan for your wealth would likely also help with a plan for health, and that’s certainly a conversation for starters!
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Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.