Revealed: How long might your pension pot need to last?

Category: News

Data published by the Office for National Statistics (ONS) in January could help you decide the right retirement date for you.

Rising life expectancy figures show that UK adults retiring in 2022 will, on average, need a pension pot big enough to last another two decades. The chances of living to 100, meanwhile, are also rising.

Is your pension pot big enough to last four decades? If not, what actions can you take now to remedy that?

Keep reading to find out.

Life expectancy should be a key factor in your retirement planning

When you’re planning for retirement, you’ll be thinking about three key questions:

  • When do I want to retire?
  • What do I want to do in retirement?
  • Can I afford it?

One major consideration when answering the last question will be your life expectancy.

ONS figures confirm that the average 65-year-old UK man can expect to live a further 19.7 years, while for a woman, the figure is 22 years. By 2045, these figures will rise to nearly 22 years for men and more than 24 years for women.

A woman aged 50 today has a 7% chance of making it to 100.

Incredibly, the report goes on to state that more than a quarter (27%) of girls born in 2045 will live to be 100. The need to plan for a long retirement will only become more pressing for future generations.

Planning for a long retirement means starting early

The best way to ensure that you retire with a pension pot sufficient to last you for the rest of your life is to start contributing early.

While larger salaries – and larger contributions – might come later in life, putting aside what you can as early as possible gives your investment a chance to grow and compound over time. Be sure to make the maximum contribution to auto-enrolment and remember too that many employers will increase their contribution if you increase yours.

Factor in the State Pension too. You’ll need 35 “qualifying years” to receive the full amount and it could be the perfect foundation on which to build the rest of your retirement strategy.

If you’re starting to contribute later, remember that there’s still time to be patient

Last year, the Guardian reported on the rising numbers of “late financial bloomers”, that is, those who marry and have children later in life. This group is also likely to start paying into a pension later.

Contributing later in life means the contributions will need to be larger. The rule of thumb states that you should halve the age at which you start paying into a pension and contribute this percentage of your monthly income.

Say, for example, that you start paying into a pension aged 30, you’d need to direct 15% of your salary into a pension. Starting later, at age 50, you’ll need to contribute 25%.

Even starting at 50, you’ll still have more than a decade of pension contributions when you come to retire. These could make a huge difference to the lifestyle you can afford.

Increased life expectancy could mean additional costs in later life

When you’re calculating whether your pension pot is large enough for you to retire, remember that your expenditure won’t be uniform. You’ll probably spend more in the early “active” years of your retirement before your expenditure starts to decrease.

In later life, the potential cost of care could see your expenditure rise again. This is especially true as life expectancies rise.

Source: ONS

ONS figures from 2021 confirm that while life expectancy has increased, the number of years spent in “good” health has decreased for men and women since 2014.

Living longer in “poor” health could mean additional financial strain as social care costs remain high.

Accurately calculating your expenditure throughout retirement isn’t easy. Thankfully, at Globe IFA, we have decades of combined experience and are on hand to help you put a sustainable plan in place.

Get in touch

Building a robust retirement plan can be complicated. You’ll need to ask yourself some important questions including when you want to retire and what your dream retirement will look like. Ensuring you have enough to live this dream life will mean factoring in your fluctuating expenditure in retirement, and how long that retirement might last.

If you’d like help answering any of these questions, get in touch. Please email or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.