Playing the longevity game: Financial planning for the 90-plus generation

Playing the longevity game: Financial planning for the 90-plus generation

Humanity might not yet have discovered the secret to eternal youth, but statistics show that we’re certainly mastering the art of living longer.

In the two decades since 2004, the number of UK residents aged 90 and over increased by 54%, meaning there are now an estimated 625,000 people in this age bracket. Data from the Office for National Statistics also reveals that the number of centenarians in the UK population doubled to 16,600 over the same period.

Clearly, these remarkable figures are to be celebrated, reflecting ongoing advances in medical science and the invaluable support provided by our health and social care systems. Separately, however, they raise a poignant question about our preparedness for living longer lives. Are we putting the right plans in place to financially support ourselves and our families long into our retirement years?

Official figures underline the fact that, on average, we can expect to enjoy a fuller retirement than previous generations. In 1948, when the forerunner to the basic State Pension was introduced, it was available to men aged 65 when the average life expectancy was also around this figure.

Today, while pensionable age has nudged one year higher to 66, average life expectancy is approximately 80 years for men and 83 years for women - figures that are projected to rise to 89 years and 92 years respectively by 2047.

Facing the realities

The broader economic implications of this shift are well documented, with intensifying pressure on a pensions system underpinned by the triple lock, and a growing burden on the NHS and care providers.

Policymakers grappling with these difficult big-picture issues face challenging questions over how to respond. Currently, it is legislated that the State Pension age will rise to 68 from 2044, but the launch of a government review into the system raises the possibility of reforms being introduced earlier.

Against this backdrop, there is no doubting that individuals face a challenge in understanding what a longer retirement means not only for their savings and investment strategies, but also with regard to any legacy plans that aim to provide for loved ones in the future.

Estimating expenditure

Ensuring you have sufficient funds to sustain a full retirement that could last 30 years or more can be a tricky task. In simple terms, it means balancing the value of accumulated assets and wealth against a realistic assessment of the financial demands you will face over this period.

For some, that might prompt a rethink of the age at which they decide to stop working. After all, delaying retirement can provide more time to top-up pension contributions and benefit from investment growth while avoiding or limiting the depletion of funds.

When it comes to estimating your expenditure, many people assume that a retirement lifestyle will be associated with lower outgoings. However, it is important that any calculation goes beyond the essentials of housing and food to incorporate lifestyle spending demands and the potential for unexpected costs to arise.

A major potential cost that can sometimes be overlooked is funding care in later life. In England, individuals with savings and assets above the threshold of £23,250 will need to pay for their own care home costs. The latest data shows that around 37% of care home residents are self-funders, and with average fees of £949 per week, there is clearly a need to factor this scenario into your financial planning.

Factoring in inflation

Even if it is the case that your cost base is reduced in retirement, it’s important to remember that inflation will continue to erode your spending power over time. This is highlighted by the fact that goods and services costing £100 in 2000 would cost £191.15 today.

Maintaining a focus on investments that are designed to keep pace with, or ideally exceed, inflation can be valuable in easing the pressure on cash savings as part of a longer-term growth strategy. Portfolios should carefully balance an individual’s appetite for risk and growth potential with stability and confidence.

Diversification is crucial to achieve this goal, avoiding overexposure in certain areas while seeking to optimise returns in others. As such, it is highly advisable to seek support from a regulated financial advisor to help establish a strategy that incorporates consideration of the full breadth of your wealth while protecting against unforeseen risk.

During the early years of retirement, when investors are entering the decumulation phase, a particular concern is sequence-of-returns risk, also known as sequencing risk. This describes a situation where the impact of a market downturn not only suppresses returns but also reduces the capital available for reinvestment at a later date when markets return to health.

Again, diversification is a key strategy here, with the aim of spreading wealth across asset classes to limit exposure while also minimising the need to divest.

Achieving the right balance

Pension savings can provide a helpful counterbalance to market-driven uncertainty. This is underlined by the growing popularity in recent years of annuities, which provide the reliability of a regular income to smooth the process of budgeting for ongoing living expenses.

Achieving the right balance across assets, savings and investments is a challenge, and it is one that is likely to evolve during retirement. This makes it important to undertake regular reviews supported by an adviser, providing the chance to adapt to external forces and take stock of personal circumstances. After all, assumptions around spending, appetite for risk and decisions around intergenerational wealth planning can change over time, and flexible, proactive strategies allow for these changes to be accommodated.

Ultimately, however, plans can only be amended when they have been devised and decided in the first place. This underlines the need to think ahead and take a long-term approach to what might be a long time in retirement.

Establishing a robust, holistic retirement plan should integrate consideration of your personal finances, assets, and estate as well as a realistic appreciation of future demands on your wealth. It should allow you to adapt and optimise your position. More than that, it should give you the confidence to live a full and happy life in retirement while providing the foundations for your legacy.

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.