Why it's important to factor life expectancy into your financial plan

September 2022
Happy Older Man
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For years, we've believed that women tend to live longer than men. But a new study carried out in Denmark suggests that, actually, men have a “substantial chance of outliving females”.

Looking at data on the lifespan of men and women in 199 countries across 200 years, the study concluded that men have a high probability of outliving women.

This was especially true for men who were married and have a degree.

If you're wondering what all this has to do with financial planning, the answer is quite a lot.

Increased longevity makes it important to plan for a long life
Life expectancy is rising. People retiring now are likely to be spending far longer in retirement than their parents and grandparents. 

In fact, according to the Office for National Statistics, a 67-year-old male has an average life expectancy of 85 years. For a 67-year-old female, the average life expectancy is 87.

Remember, these are average figures, which means that the man has a 25% chance of reaching 92. Meanwhile, a woman has the same chance of living to age 94.

The average UK life expectancy will almost certainly continue to rise
With modern medicine advances and health practices improving all the time, the average UK life expectancy will almost certainly continue to increase.

The good thing about all of this is that rising life expectancy may mean you’ll be able to enjoy a longer retirement. On the other hand, it's also important to factor in the possibility of spending more of your later years in ill health.
This means that you need to plan for both a longer retirement and possible later-life care too, which is where your financial plan comes into play.

An individual retiring at the current minimum retirement age of 55 (rising to 57 in 2028), who lived well into their 90s, could be in retirement for 40 years.

A lot can change in 40 years, from your priorities and goals, to how able you are to achieve them.
Expenditure throughout retirement isn’t static and life expectancy must be considered as a fundamental part of your retirement planning.

3 important questions to ask yourself when formulating your retirement plan
When you’re building your retirement plan, make sure you ask yourself these important questions:

1. When do I want to retire?
Most of us have an ideal retirement date in mind but it’s important to ensure that the goal is realistic.

To know whether you’re on course to meet your desired retirement date, we can look at your current pension provision to help you understand if you have enough money to be financially stable for the rest of your life.

Beginning to plan for retirement – and starting to build a pension fund – as early as possible gives you more time to increase contributions, if necessary. It also increases your chances of retiring when you want to.

Remember, your retirement date doesn’t have to be set in stone. Life events might alter your priorities, causing your retirement date to be brought forward, or put back.

2. What do I plan to do in retirement?
As part of the above calculation, it’s important to have some understanding of what your plans are. 
For example, extensive world travel will likely be more costly than remaining in the UK, downsizing, and pottering around your garden or spending time with your family. 

You should also account for the fact that your spending won’t remain regular throughout your retirement years. You might find you travel less as you age as the idea of navigating airports and long-haul flights becomes too stressful and tiring.

3. How long will my money need to last?
The final factor to consider is how long your pension fund will need to last.

You’ll need a fund large enough to live your desired lifestyle throughout your retirement. But you’ll also need to think about providing any inheritance you plan to leave to the next generation and ensuring you can pay for care costs if needed.

According to Canada Life, more than 7 in 10 over-60s haven’t thought about planning for later-life care. But, as life expectancy has risen, “healthy” life expectancy – although also rising – has failed to keep up. This means there’s an increased chance that we’ll all need some form of care as we get older.
So, be sure to factor in the potential costs of later-life care, too.

Good estate planning will allow you to put contingencies in place so that you can access – or pass on – your money tax-efficiently, whatever the future brings.

You can’t predict the future, but you can do your best to plan for it
Clearly, no one knows how long they will live for. Uncertainty makes financial planning more difficult, but also more important: the less that’s left to chance, the better. 

With life expectancy at a record high, the key challenge is to make sure your money outlives you and not the other way around.

This means that life expectancy should be a key part of your financial planning process.
How LEBC can help
We may not be able to gaze into a crystal ball and predict how long your money will need to last, but we can use intelligent financial cashflow modelling software to help you understand how a range of potential “what if’s” may affect your future plans.

The most common factors that can derail your finances in later years are inflation and failing health. By building allowances for these into your plans, you can better protect your future finances.

Get in touch
To find out more about how we can help you build a financial plan to protect your future, please get in touch. Email clientenquiries@lebc-group.com or call us on 0800 055 6585.

Please note
The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy. You should seek independent financial advice before embarking on any course of action. All contents are based on our understanding of HMRC legislation, which is subject to change.
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. Pension income could also be affected by interest rates at the time benefits are taken.
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
When investing your capital is at risk.

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