Who will live longer - You or your Pension?

24 Oct 2019

Improvements in infrastructure, nutrition, medical research and healthcare worldwide, has had a significant impact on the life expectancy of individuals. People are living longer, and by 2050, are expected to live well into their 90’s.

How will living longer affect your retirement plans? Will you have enough to see you through your later years?

Ageing already has its challenges, but ageing and being poor is even worse. 

“It is particularly concerning in this day and age, because increased longevity would mean higher retirement savings were necessary to avoid running out of money.” - Nigel Green CEO deVere Group

Most pensions are not designed to last that long. They usually cover around 20-25 years at best after retirement. Very few people are fortunate enough to have company pensions for life. Many governments have already started reviewing the minimum pension age to try to counteract this pension shortfall.

FTAdviser’s latest poll reveals that 72% of clients’ biggest concern was living longer than their pensions.

A big consideration is how much monthly income you draw from your pension pot and if you take any lump sum payments.

Possible tips to consider to help make your pension last longer

  • Consider contributing more to your pension now while you still have a few years left to retirement.
  • You could contribute towards a privately invested pension fund to supplement the shortfall.
  • Work out a thorough budget before retirement, to determine income and expense, so you know how much you will need every month.
  • Downsizing your house would allow lower monthly upkeep, insurance, maintenance fees etc. The extra cash from selling your larger house could supplement your pension.
  • Consider getting a retirement job. Whether its turning a hobby into a business or doing something completely different.
  • Reduce your transportation costs. Do you still need two cars or that expensive sports car?
  • Take vacations during off peak times. Prices are cheaper and crowds are fewer.
  • Take advantage of pensioners days and pensioners discounts.
  • Consider taking income draw down on your retirement fund. The remaining capital will stay invested and grow your funds.

(some info taken from the motley fool. www.fool.com)

It is always important to ensure that you have a nominated beneficiary on your retirement fund so that your assets are distributed according to your wishes if anything should happen.

Importance of compound interest

The longer your funds stay invested, the more compound interest it will earn. The most interest will accumulate during the last three or four years, so taking early retirement could significantly reduce the value of your retirement fund.  On the other hand, waiting another year before drawing a pension could significantly increase your retirement fund.

Example

Retire as planned Retire a year earlier Wait another year

£342 099
Compound Interest for last year £19 704

£316 000
C
ompound interest for last year £18 197 (£26 099 less)


£369 916

Compound interest £21 315
(£27 817 more)

Speak to your deVere adviser to help work out a plan that will suit your pocket and your individual retirement needs. [email protected]

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.