Good news: People in the UK are living for longer.
But along with benefiting longer life expectancy, it means we’ve got to plan for more years financially. As more people reach milestone birthdays that just a few generations ago only a lucky handful celebrated, it does raise questions on how everyone is going to be supported in terms of money.
Whether you’re approaching retirement age now or are in your 30s and have barely considered saving in a pension, thinking about how many years you’re likely to have once you give up work is important. It means you can make sure you’re putting sufficient money aside now and that you can maximise what you do have once you reach retirement age.
According to the Office of National Statistics (ONS), those that have celebrated their 65th birthday this year can expect to live between another 18 to 20 years. The average 65-year-old man today can expect to live to be almost 84, while a woman of the same age is likely to reach her 86th birthday.
Babies born today can expect to enjoy life for around an extra 4 years compared to those born just 20 years earlier too. An increasing number are expected to reach the 100th birthday milestone, with 22.6% of baby boys and 28.3% of girls anticipated to reach triple figures.
But what does this mean for retirement?
It means we’re likely to have a far longer retirement than the generations that came before us. True, the State Pension age is rising, but life expectancy has increased at a more rapid rate. That means that each of our saved pensions needs to stretch further to ensure a comfortable, fulfilling lifestyle in our later years.
So, what can you do now to plan for a longer life expectancy? We’ve got seven ways to improve your retirement prospects:
1. Understand and maximise the State Pension
You can currently collect your State Pension from the age of 65, although this is gradually increasing.
The most you’ll receive from a Basic State Pension if you were to claim it now is £163.35 per week, which increases every year as it’s linked to both wage growth and the Consumer Price Index. To be eligible for the full amount you’ll need to have made at least 35 years of National Insurance contributions.
It is possible to receive a State Pension above the basic amount if you have a certain amount of Additional State Pension or you defer taking your State Pension once you reach pension age.
2. Utilise your Workplace Pension
The majority of UK workers will now have been automatically enrolled in a Workplace Pension scheme unless you’ve opted out (which we’d highly advise against).
At the moment, unless you’ve increased your contributions, you’ll be paying in 3% of your total salary into it, with your employer paying an extra 2%. From April 2019, this will increase to 5% and 3% respectively, so each month 8% of your salary will be going into a pension fund. On top of this, the government will usually add money in the form of a tax relief; making your Workplace Pension one of the most efficient ways to save for retirement.
Where possible, it’s advisable that you increase your Workplace Pension contributions. In some cases, employers have incentives in place to match what you put in up to a certain level, making it even more attractive.
3. Put more away if possible
Alongside your Workplace Pension, it’s a good idea to put extra funds to one side where possible.
When you’re saving for other things, be in a house deposit or a fund to help your grandchildren through university, your pension can often be an afterthought. But putting a consistent amount away each month or making lump sum deposits can mean the difference between affording those luxuries you’ve been looking forward to in retirement and not.
The Lifetime ISA (LISA) was designed to help people save towards their retirement, making it an excellent option. You can put up to £4,000 in the account every year, benefiting from a 25% government bonus. To open a LISA, you must be aged 18 or over but under 40, and you can keep depositing money until your turn 50. So, if you open a LISA at 18 and put in the maximum each year, you’ll benefit from an extra £33,000.
However, it’s worth noting that if you want to withdraw money from your LISA for a purpose other than a deposit on your first home or retirement, you will incur a substantial penalty. For this reason, if you need flexibility, another option may be better suited to you.
4. Consider working for longer
Continuing to work past the State Pension age is becoming an increasingly attractive option for UK workers. Whether it’s a necessity due to pension funds or a lifestyle choice, it’s one way to make your money go further.
If it’s a route you choose, you won’t be alone either. Research from Aegon found that just 27% of UK employees plan to give up work altogether on a set date. Instead, people are preferring to transition slowly, with 61% choosing to work part-time during their ‘retirement’. For many, the reasons aren’t related to money either. The two most common reasons for working for longer were keeping active/keeping brain alert (62%) and enjoying work (39%).
If you do decide to work for longer, you can choose to defer your State Pension, meaning you’ll receive more when you do collect it, and your personal pensions will go further too.
5. Encourage younger generations to start saving early
The rising life expectancy will be affecting your retirement plans. But imagine the impact it will have on children and grandchildren; they’re likely to need even larger sums to cover their life after work.
While you might be thinking about leaving some of your wealth to younger generations, your advice can be just as invaluable too. Encouraging youngsters to start saving for their retirement early, such as through a Workplace Pension, can set them on the right path.
If you are leaving a portion of your wealth and assets to loved ones, you may want to consider adding it to a tax-free wrapper that’s intended to support your loved ones through retirement before you pass away. Adding sums to a pension or Lifetime ISA (LISA) can give you peace of mind that your family will be financially secure as they enter retirement.
6. Be realistic when planning your retirement
When you think about your retirement years, what do you see? If you’re thinking about travelling to exotic destinations after commissioning a private plane, you’ll need to ask yourself if it’s affordable or a pipe-dream.
To ensure your money lasts you throughout retirement, you’ll need to understand what you’re actually going to be able to do with your retirement income. This is where a financial planner can help. If you need help putting your retirement plans into context with your pension fund, you can talk to us. We’ll help you understand what your annual retirement income could be, including if you took out a lump sum to really enjoy those first couple of years.
Armed with an idea of what you can achieve with your current fund and levels of savings, you can make necessary adjustments if you’ve discovered there will be a shortfall.
7. Plan for the cost of care
As we get older, the likelihood of us needing some level of care increases. When you’re planning for your retirement, it may not be a cost you’ve even considered. But as life expectancy rises, it’s one that is going to be increasingly important.
The cost of care varies depending on individual needs, rising significantly if nursing is required, and where in the UK you’re located. However, PayingForCare puts the average cost of a residential care home at £29,270 per year. Home care costs, a preferred option for many, can run into the thousands too, varying according to how many hours of support you want a day.
There are, of course, state provisions made for delivering care but it’s becoming more common for individuals to pay at least a portion of their care costs, giving them more say and freedom.
To start making plans for your retirement and ensure your savings are on track, contact us today.