Recent figures from the Office for National Statistics (ONS) confirm that there are 127 times more UK centenarians now than there were a century ago. 2021 saw a record high of nearly 14,000.
This represents just 0.02% of the total population and yet the likelihood of reaching 100 continues to rise.
Keep reading to find out what this would mean for your retirement plans and the increasing importance of planning for a longer life.
Steadily rising life expectancies mean that planning for a 100-year life could become increasingly necessary
The below chart shows the number of UK centenarians each year since 1921. The sharp rise over the last half-century is hard to miss.
Source: ONS
While male centenarians in 2021 had outlived their life expectancy at birth by around 40 years (and females by around 30 years), a quarter of centenarians reported “good” or “very good” health and almost a third were non-disabled.
The news for those born in 2020 is even better. More than 13% of boys and 19% of girls born in the UK in 2020 could live to age 100. For girls born in 2045, this figure rises to more than a quarter (27%).
2021’s figures place the UK 7th on a worldwide list of countries with the highest number of centenarians. But what are the financial implications of a longer life?
A four-decade retirement could require an extra £240,000 in your pension pot
With average life expectancy currently around 84, a 100-year life means budgeting for an additional 16 years. If you retire at the UK minimum age (currently 55 but rising to 57 in 2028) you’ll need funds to maintain your desired lifestyle for more than four decades.
Recent figures published by MoneyAge suggest that that could cost you an extra £240,000 if you intend to live a “comfortable” retirement.
Even if you plan to live on only a “moderate” income, the extra years from 84 to 100 would require an additional £112,000 in pension wealth.
Note: These figures are based on Pensions and Lifetime Savings Association (PLSA) figures from 2022 that suggest private pension income of £15,383 for a moderate retirement and £32,882 for a comfortable retirement (with a full State Pension).
5 important steps to take now
1. Start saving early to build the largest fund possible
The simplest way to build a large enough fund to sustain your desired lifestyle throughout a decades-long retirement is to begin contributing as early as possible.
Ideally, you’d start contributing at the very beginning of your career. Remember too, though, that it’s never too late to start saving, or to increase your current contribution levels.
The more you have invested, and the longer it’s invested for, the better your chance of seeing meaningful investment returns and compound growth. You can also afford to put less aside each month.
2. Consider a guaranteed income option for at least part of your pension
Once you begin to draw your State Pension, this will pay for the rest of your life.
You can increase the guaranteed pension income you receive by taking an annuity from your private or workplace pensions too.
However long you live, you’ll know you’ll have a stable income to cover known expenses, like household bills or your mortgage.
Now is a great time to consider an annuity. FTAdviser confirms that rates reached a 14-year high in October 2022. The break-even point (when your annuity has provided more income than you originally saved) dropped to just 15 years – a small chunk of a potential 40-year retirement.
3. Factor in the effects of inflation
As well as providing a regular income, the State Pension rises each year to combat increases in the cost of living. It does so via the triple lock.
This mechanism is especially important during periods of high inflation (as we’ve seen over the last couple of years) and during a decades-long retirement.
You can also choose an annuity that rises annually, usually by a set percentage or in line with inflation. Think carefully about the annuity basis you choose, as once the pension is in payment, you will usually be locked in (outside of any cooling-off period).
4. Budget carefully with any pension funds flexibly withdrawn
Pension Freedoms legislation provided retirees with greater flexibility but more responsibility for budgeting too.
If you choose to take a flexible option, you’ll need to manage your withdrawals carefully and factor in your potential longevity.
Basing your pension decumulation on average life expectancies could see you run out of money decades early if you go on to live a 100-year life.
5. Factor in later-life care
While scientific and medical advancements are increasing life expectancy, this could mean we spend more years in ill health. This will come with additional care costs.
Factoring in the cost of later-life care (with a contingency in case care isn’t required) is a crucial part of any financial plan. But it becomes even more vital when life expectancy is longer. We can help you put a plan for care in place, so be sure to speak to us if you need help factoring this in.
Get in touch
If you’d like help with planning for a long retirement, please get in touch.
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
