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Why does longevity matter?

By Andy Hearne FPFS

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We often read about the fact that people are living longer. According to the Office of National Statistics, on average, people aged 55 today will live to their mid-to-late 80s. In addition, around 1 in 10 men and 1 in 5 women this age will reach the age of 100. Being informed about how much longer you potentially have to live is no bad thing, especially when it comes to Financial Planning.


Retirement Planning
Understanding your longevity helps us to establish how much you need to be saving for retirement, when you can afford to retire and how much you can afford to spend in retirement.

For those of you who are not yet retired, take your target retirement age and subtract your current age. That’s how many years you have left to save for your retirement. Next, using the table below, look up your average life expectancy. Half of us will live longer than our average life expectancy, so this information is interesting, but of little use for Retirement Planning. Instead, we prefer to use the ‘1 in 10 chance of reaching’ age. Take this ‘1 in 10’ age and subtract your target retirement age. This is how many years you could be retired for (without earning a salary). Finally, multiply this figure by your anticipated annual expenses in retirement and you’ll get an idea of how much money you’ll need.


Source: Office of National Statistics

For example, for a man aged 55 today who is aiming to retire at 65, his average life expectancy would be 86, but there’s a 1 in 10 chance he would reach the age of 100. In other words, there are 10 years left for him to save enough money to last for up to 35 years in retirement. Let’s assume his anticipated annual expenses in retirement would be £2,500 pm (£30,000 pa), before accounting for inflation or Care Fees in later life, that adds up to over £1m. This is a simple, yet crude calculation for the purposes of this article. Instead, we utilise some comprehensive software to help us model our clients’ finances for the rest of their lives, which accounts for inflation, Care Fees and many other important factors.

Care Fees
For those of you who have had a parent who has gone into Care, you will already know the startling cost of Care Fees. When we model our clients’ financial future, we assume Care Fees of £50,000 pa for up to 5 years prior to their ‘1 in 10’ age. This is a significant outlay, and in some cases requires equity to be released from the home or even fully sold to be affordable, but it can be reassuring to know that this would be affordable if and/or when this is required.


Source: Office of National Statistics

Your Bucket List
Few of us expect to reach our 100th Birthday, but we have to make assumptions about longevity to help ensure that our clients’ Financial Plans work for the long-term. Sometimes these conversations can feel slightly uncomfortable, but it’s extremely important to have these. Once we’ve carried out our research and analysis and implemented a robust, long-term Financial Plan, we adopt the mantra that ‘life’s not a rehearsal’ and we encourage clients to write a Bucket List and spend any spare money and time on the important things with the important people, safe in the knowledge that the long-term plan is taken care of.

T: 01344 778990 • E: andy@fpp-ifa.co.uk • W: fpp-ifa.co.uk
A: 19 Wellington Business Park, Dukes Ride, Crowthorne, Berkshire, RG45 6LS

This article is for information purposes only and should not be construed as financial advice. Past performance is not a reliable indicator of future performance. The value of investments and income from them may go down. You may not get back the original amount invested.

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