My plan for a 37-year retirement: ANDREW OXLADE on the pension you’d need for a 100-year life

One of the bleaker activities I’ve been inflicting on friends and colleagues this week, amid conversations about raising the retirement age, is to encourage them to look for their “death day.”

This is a freebie from the Office for National Statistics (ONS) in the form of a calculator on their website. Depending on gender and age, it will reveal the average expected life expectancy.

At 50, I have 34 years left, on average. Expressed like this, it is morbid and a little depressing.

It does not have to be this way. Stoics and other philosophers would argue that staring at one’s mortality affirms life; a reminder to go ahead and enjoy it.

I find it motivating to compare what’s left with numbers: in the 34 years I have left I can expect 20 big vacations, maybe 25 nights at the theater, maybe 80 more novels, if I can read a little faster, and three more at the end of the year. decade. celebrations.

My real passion is swimming in cold lakes and rivers, and I have a 13km swim in the Thames booked for August. Given the increasing number of injuries, the list of future great swimmers may be reduced anyway.

These types of numerical calculations encourage us to pause and think.

On a more practical level, I’m starting to focus more clearly on the details of how I will fund retirement, knowing that it will most likely last 17 years from age 67, my official state pension age.

I should also prepare for scenarios where I hold out to 93 (a one in four chance), or 97 (a one in 10 chance), the ONS calculator suggests.

Long-term trends of increasing longevity have been with us for some time, and the cost of funding such long lives is a growing concern for both the State and individuals.

The ONS calculator told a 25-year-old colleague that she would probably live to be 89, with a 1 in 10 chance of reaching 101.

For her and millions of other young people, this will require not only careful forethought and retirement planning, but perhaps a more radical change in mindset.

There is a growing debate around ‘the 100-year life’ following the publication of a book with that name published in 2016.

The notion of life in three stages (education, work, retirement) can begin to transform into something more.

Perhaps a life where longer lives are funded by longer careers, but where we work in a different way: more part-time work, more jobs that resemble our hobbies and interests, more entrepreneurship, etc.

The explosion of “digital nomads” – those who connect to work at local companies while traveling the world – is one example. It is estimated that today around 16,000 of these nomads work in Lisbon, according to Nomad List.

It may take decades for work patterns to fully evolve to the 100-year lifespan. But Britain is likely to be the leader: it ranks seventh globally for the proportion of centenarians, ahead of countries such as Greece and Italy, famous for their life-extending Mediterranean diets.

Some of the solutions outlined for younger generations may also work for those closer to retirement, and perhaps already are.

Consider the rise of consulting work, where employees continue to earn less but delay the day they will begin to draw down their retirement fund.

On a more prosaic level, my fellow 50-year-olds must address the many unknowns: how long you will live, which determines how much money you will need, which determines how much you need to save.

How long will you live?

When looking at the data, there are a few things to consider. The ONS life expectancy tool estimates that the longer we have lived, the longer we will live.

So a 65-year-old man can expect to live to be 85; A 90-year-old man is expected to live to be 94. For this reason, my life expectancy of 84 will be longer when I reach my mid-60s.

It’s also worth noting that while the increase in life expectancy has been extraordinary in recent decades, improvements may be slowing. Covid had an impact and the growing obesity epidemic will continue to have a greater influence.

It is incredibly difficult for a 25-year-old to calculate how long they might live and how much time they might need to fund their retirement.

At what age will you retire?

Warnings about later retirement dates keep coming. More recently, the International Longevity Center caused concern by suggesting that the state pension age would have to increase from the current 66 years to 70 or 71 years in 2050.

The reality is less bleak. Under current rules, the state pension age will rise to 67 between 2026 and 2028 and to 68 between 2042 and 2044.

The age at which you can access your own pension funds will also rise, from 55 to 57 in 2028 and will likely follow changes to the state pension age by minus 10 years. In theory, it would increase to 58 in 2034.

To keep the state pension affordable, the government can accelerate the increase in the retirement age. The alternative is to loosen the ‘triple lock’ commitment which sees state pensions rise at the fastest pace of wages and inflation, with a minimum 2.5 per cent increase guaranteed.

This may become more acceptable once the gap between employment income and retirement income has narrowed further.

I have noticed that people in their 20s and 30s often dismiss the future of the state pension, believing that it will be worthless or completely absent when they reach retirement. I wondered the same thing at your age. Today I am more positive.

Providing support in retirement is a fundamental principle of the social contract and improvements to it over the last decade reflect this.

The state pension will be maintained and it already makes sense today. For many, all they have is the full state pension of £10,600 a year; For almost everyone else it makes a substantial contribution to their retirement planning.

How much will you need for a decent retirement?

The Pensions and Lifetime Savings Association (PLSA) published new retirement income estimates earlier this month. People looking for a comfortable retirement should now expect to spend £43,100 a year, an increase of 15.5 per cent.

At Fidelity, we recently did some calculations based on retirement at age 65 with the aim of generating an income of £43,500 a year, which increases with inflation.

The individual would receive the current full state pension from age 67, currently £10,600 a year, which would reduce the income needed from investments to £32,882.

A woman would need to accumulate £640,000; a man would need less, £600,000, because of his shorter life expectancy.

This is based on income increasing with 2 percent inflation and assuming 5 percent gross investment growth with 1 percent fees and no plan to pass on an inheritance.

Life expectancy is assumed to be 20 years for a man and 22 years for a woman. But if the man lived to be 92 instead of 85, he would need to save £750,000, that is an extra £150,000.

Variables in investment returns can also distort the math. If annual returns were as low as 2 per cent, the man would need £810,000. If the markets were kind and he made 8 per cent profits, he would only need £460,000.

Finally, we cannot forget about inflation. If the Consumer Price Index, or CPI, were to stabilize in the very long term at 4 per cent, the sum needed would rise to £803,000.

My possible retirement at 37 years

Certainty is rarely a feature of modern retirement planning. I am part of a generation that must deal with theoretical scenarios, like the one above, as final salary pension guarantees become increasingly scarce.

The only certainty is that I must save more to increase the chances of the retirement I want.

I will continue to save into my company pension scheme, the most tax-efficient savings option for most people, and continue to pool old workplace pensions into a Self-Invested Personal Pension (Sipp).

Better visibility should mean better planning.

I am also increasingly accepting that I will work until age 67, my retirement age. But I would also like to know that I could stop working sooner if necessary.

After all, healthy lives are not increasing like before.

Statistics tell me that there is an increasing chance that I will have health problems when I am 60 years old. I hope not, but I would like to know that I could retire or partially retire at age 60 if necessary, perhaps due to health problems or simply because I have lost my joie de vivre at work.

In that case, you would need to fund a 24-year retirement, if we’re going by averages, but you should have a plan for the one-in-10 chance of it being 37 years.

Until then, I will continue to check that I am on the right track. I will make sure that every holiday counts and that the 25 plays and 80 novels I have left and many big baths are crazy. That’s the fun part.

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