Longevity and Flexibility in Retirement

Pensions

Alastair Black

23rd April 2014 at 10:25am

Did you know we could spend 30 years living in retirement? That could be a third of our lives. Yes really! People often compare themselves to their parents but each generation is living longer than the last. Of course there is no guarantee, but this could happen to you.

As health awareness, living standards and medical advances improve, we can all expect to live longer and healthier lives than ever before. That’s a long time in retirement and it matters how you fund it. Whatever your retirement lifestyle, your income needs will change.

Retirement has changed

I’ve noticed how retirement is very much becoming a right, a lifestyle choice and a far cry from previous generations accepting active life was over. Whatever your retirement lifestyle, your income needs will change. Recent research highlights a real desire to retire into various self-managed lifestyles, including :

  • consultancy or part time work
  • more frequent travel and holidays
  • supporting friends and family (including grandchildren and elderly parents)
  • voluntary work
  • revisiting sports and activities
  • greater interest in health and wellbeing

Working out how to flex your money to help achieve these types of goals really matters. It could make your money last longer. It could also broaden your options.

Misunderstanding income needs

Interestingly, despite aspiring to a great retirement lifestyle, the research revealed the majority of people do not fully understand the income needed in retirement. Most believe they will need more income when they first retire, when healthy enough to spend their money. There is then an assumption that the amount of income needed then decreases, levelling off over their remaining years.

Retirement costs can vary significantly

The research findings concern me. There’s a very worrying assumption that we will spend less in later retirement. The reality is likely to be quite different. There’s a very worrying assumption that we will spend less in later retirement. The reality is likely to be quite different. Inflation mustn’t be ignored as is so often the case. The basic costs of living are still going up and what looks like a small number in the early years adds up over time. 4% inflation means you have to give up one third of your spending in ten years. I don’t know how I would give up one third of everything I spend money on, especially as we have little choice over food and heating.

Consider the potential for an illness to you or a loved one. That causes either a one-off significant expense such as alterations to where you live, or on-going cost of greater care and assistance. I would want to know I have enough money to be comfortable for all of my 30 years – not just the first ten.

Despite people saying a sustainable level of income is their priority, the reality is that expenses do not remain constant throughout retirement.

Mind the gap…

Retirement income must always start with greater funding while we work. But it must also be flexible enough to cope with changes in different stages in retirement.

Whatever your retirement lifestyle, income needs will change. Speaking to an expert about income flexibility and using a range of assets can help towards achieving your retirement goals. There are few certainties in life but needing a sustainable, yet flexible income as we get older and live for longer, is one of them.

Try our Pension Calculator to work out how you can help achieve the lifestyle you’re after in retirement:

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The information in this blog and any responses to comments are not financial advice.