When it comes to retirement planning one of the questions that you can never answer is how long exactly will you need the income for? It is obviously impossible to work out exactly how long you will live for, so what most people do is use their parents age (where possible) to give them a rough idea of their life expectancy.
In theory this makes sense but in reality it might not be the case.
Over the last 40 years life expectancy in the UK has generally been increasing, simple reasons for this have been advances in health care and improvements in both living and working conditions.
Another factor that can significantly affect life expectancy is your postcode. If you live in a completely different part of the country (or world) to where your parents lived you may have a longer life expectancy based on this. For example, new research by Health Equals has found that babies born in the FY1 area of Blackpool have an average life expectancy of just 73 years, whereas babies born in London postcode areas of SW7 and EC3B have an average life expectancy of 91 years which is a difference of 18 years between the two areas.
In addition to this there is a heightened awareness of health nowadays. Take smoking for instance, this would have been commonplace during our parents time (even indoors and in the workplace) with little knowledge and awareness of the health implications. According to the Office of National Statistics even within the last decade there has been a significant reduction in the amount of smokers. In 2011 20% of the UK population smoked, by 2021 this was down to 12.9% of the population. This also follows changes to the packet size, bans for smoking in cars with children in and there is new legislation in place to increase the smoking age each year moving forward.
Therefore if your parents lived and worked in completely differing conditions to yourself it may be unwise to use their age as an accurate measurement for your life expectancy.
If life expectancy is increasing for the reasons above (along with many more!) it makes retirement planning even more important for a few reasons.
- People are wanting to be ‘retired’ for longer
- Retirement is a becoming a lot more expensive
- Decisions made when decumulating wealth can have a massive impact on your retirement pot which is harder to recover from
There are so many factors to take into consideration with regards to planning for retirement. One to avoid though is survival pessimism which is simply when people do not think that they will live for anywhere near as long as they will do. The risks with this are running out of money in retirement, financial stresses in later life, and also no provision for increased costs at later life. For instance if you were to have to move to a care home the current average cost for this in the UK is £41,600 per year. Therefore if you have not planned for a suitable lifespan you can find yourself in the position of outliving your retirement pot. As a result of this it is clear that an early and well planned retirement strategy is a very important part of your financial plan moving forward.
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