It may sound fanciful, but a 100-year lifespan is well within the bounds of probability. That could have profound implications for your retirement planning.

While the average 70-year-old man now has a 4.1% chance of reaching his 100th birthday, an average 40-year-old woman has a 13.8% chance of becoming 100. Many more will reach over 90.

There are three big issues to look out for in planning a long retirement.

Income in retirement

If you retire at 65, your pension income could need to last for 35 years. The only way to guarantee your income throughout life is to purchase an annuity. Today, a simple fixed annuity starting at age 65, with no increases, costs about £18.50 for every £1 of pension. An alternative might be to take income withdrawals from your pension fund and other investments, although that would not provide a throughout-life guarantee.

Inflation

Taking a fixed retirement income cannot be a realistic long-term option because of inflation. Over the last 35 years the pound has lost over two-thirds of its value as measured by the RPI. An inflation-proofed annuity for a single person costing £100,000 at age 65 would currently provide only a little over £3,200 a year.

Funding your retirement

The minimum level of pension contributions for auto enrolment will be 8% of band earnings from 6 April 2019. Yet pension experts consider this will be nowhere near enough to fund a comfortable retirement for most people.

There are plenty of suggestions for how much to save, but for a more accurate answer we can offer an individual calculation, based on your personal circumstances.

The value of your investment, and any income from it, can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Blog