Longer lifespans may need bigger pensions. Are you ready?
Incredible medical advancement, technological innovation and a whole host of other factors have led to an estimated increase in the average lifespan (compared to our predecessors). The UK may be suffering from some bad health trends at the moment, but on a global scale, lifespans seem to be gradually rising.
This is great news, but it also prompts a worrying question; are Britons' pension pots ready for longer lifespans?
New research suggests that the average UK worker will need a pot with £447,000 (nearly half a million!) by age 65 if he or she intends to maintain a good stream of income until death. Assuming that you live to be 100 years old, and assuming that you have an average annual UK salary of about £28,000, this is the figure you should aim for if you’re interested in enjoying many comfortable golden years.
By these estimates, a 25-year old today would need to stash away £235 a month to reach the £447k milestone by 65.
If funds are to last 35 years until the age of 100, then the private pot of an individual would need to start generating an average income of at least £20,000 a year, which may include a rise of 2 per cent to fight the inflation.
This may be a surprising study for younger generations in particular, since they may need to consider the possibility that they’ll have to maintain their pension savings for an extra 35 years or risk retiring at a later age.
If savers wait until age 45, then the figure rises even further to a whopping £859 (estimated) a month.
For many Britons, these amounts may seem almost unachievable and may demotivate them to save for retirement. Even so, it's still worth saving while you can, even if the amount falls short of these recent calculations.
Life expectancy has been steadily improving over the past several decades now and this reality is becoming even more relevant as time goes on.
In fact, official projections report that more than 50,000 people are expected to reach 100 soon, compared to just 6,000 in 2016! That's an incredible jump for such a short period of time.
Savers might want to consider a few strategies, including making the most of pension tax relief as well as the matched employer contribution via automatic enrolment efforts.
Pensioners might even have the ability to buy annuities (which can grant them a potentially steady income for life, regardless of how long they live).
Either way, financial preparation can help you avoid unexpected problems moving forward. Managing your money can be hard, especially if you aren't well versed in the intricacies that come with funds and pensions.
If this is the case, a financial advisor could help assess your individual situation and offer guidance while you make important decisions.
Longer lifespans are a good thing. However, maintaining a satisfactory standard of living in retirement can take many years of proper financial management. Gather as much knowledge as you can. Reach out to me for advice if you need help.