Can you afford to live to 100?

In Japan, if you become a centenarian – a person that lives to age 100 – you receive a ceremonial silver cup, presented on a public holiday called Respect for the Aged Day.

Centenarians in Taiwan receive a golden pendant necklace during the Chong Yang Festival, and those in Ireland earn a €2,540 “centenarians bounty” as congratulations for their longevity.

Even if you don’t receive a unique gift, centenarians in most countries can expect a letter from their head of state to mark the milestone birthday. That’s because living to 100 is considered a rare achievement.

Yet, it may not be as rare as you think. In fact, according to the Office for National Statistics (ONS), there were 13,924 centenarians living in England and Wales in 2021. This is a 127-fold increase over the past century.

The number of centenarians is likely to continue growing as healthcare improves and life expectancy rises.

As a result, you may need to consider how this could affect your retirement plans. Can you afford to live to 100?

Read on to learn more about how likely it is that you’ll become a centenarian, and some of the key retirement planning considerations to help you prepare for this eventuality.

Men and women in the UK underestimate their own life expectancy

We tend to think of centenarians as outliers but even though they are rare, more and more people are reaching this milestone.

In fact, Aegon reports that a quarter of all children born today will live to almost 100.

Naturally, if you are already approaching retirement age, your life expectancy isn’t quite so high. However, you may still live longer than you think.

The ONS life expectancy calculator estimates that a 50-year-old woman in the UK has an average life expectancy of 87 years, while a man of the same age is expected to live to 84.

However, there’s a 10% chance that a 50-year-old woman could live to 99 and a 7.8% chance that she’ll live to 100. Men of that age are marginally less likely to live to 100, but there’s still a 4.6% chance.

Unfortunately, many people underestimate their own life expectancy, and this could mean that they face a shortfall in their retirement savings.

Data reported by Canada Life reveals that men and women in the UK estimate that they will live to 80. This means that women underestimate by seven years and men by four years.

If you fall into this trap, you could run out of savings during retirement or be forced to make sacrifices to your lifestyle.

Fortunately, if you account for the fact you might live to 100 when planning for retirement, you may be more likely to secure your dream lifestyle.

Here are some ways to do that.

1. Plan for different eventualities

Planning for different eventualities can help you stress test your financial plan and potentially identify vulnerabilities.

We can help you do this with cashflow planning.

For example, we can model how much income you could sustainably draw from your pensions and other savings each year if you lived to 100. Similarly, we could see what you could spend each year if you only lived until you were 80.

This may give you a clearer idea of whether you can afford to maintain your lifestyle if you exceed your average life expectancy.

Additionally, we can consider how expenses such as care costs might affect your savings in later life.

This could be especially important as the World Health Organization (WHO) reports that life expectancy increased by 6.6 years between 2000 and 2019, while healthy life expectancy – the number of years people live without health issues – only increased by 5.4 years.

This means that you may live with health issues and require care for longer.

Residential care can be very expensive, so you may need to plan for this eventuality and ensure you have enough savings to pay for it.

2. Build more wealth before retirement

If you are concerned that you won’t be able to afford your lifestyle in retirement should you live longer than expected, you may want to consider building more wealth now.

In the 2023/24 tax year, your “Annual Allowance” – the amount you can contribute to your pension without triggering a tax charge – is £60,000 (or 100% of your earnings, whichever is lower).

If you are not currently using your full Annual Allowance, you may want to increase your pension contributions because you might benefit from tax relief and employer contributions on top of your own payments.

Additionally, you may want to make sure that you are using your full ISA allowance of £20,000 each year to save and invest tax-efficiently.

If you are unsure about how to build wealth before retirement, we will be happy to give you some guidance.

3. Draw sustainably from your savings

When you reach retirement age, it’s important to draw sustainably from your savings to make them last as long as possible.

Creating a clear retirement budget could help you do this. When writing your budget, consider expenses such as:

  • Mortgage or rent costs
  • Utilities
  • Groceries
  • Car running costs
  • Entertainment
  • Dining out.

You may also need to account for care costs or wealth you want to use to support your loved ones.

Your retirement budget may give you an idea of how much you need to draw from your savings each year to fund your lifestyle. This could help you avoid taking too much and spending your savings too quickly.

It’s also important to consider the tax you might pay when drawing from your savings. For example, you might pay Income Tax on pension income that exceeds your Personal Allowance. This stands at £12,570 in 2023/24.

You could also pay Dividend Tax or Capital Gains Tax on your non-ISA investments, in some cases.

We can help you find ways to potentially mitigate these taxes. This could make it easier to draw sustainably from your savings as you retain more of your wealth.

Get in touch

If you are concerned that you may be unable to afford to fund your retirement for long enough, we can help you prepare.

Please give us a call on 01276 855717 or email today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes that cannot be foreseen.

The Financial Conduct Authority does not regulate cashflow planning.

Approved by the Openwork Partnership on 19/03/2024