There’s an old saying: “If you don’t know where you’re going, then any road will do.”
When you think about it, we rarely set off in our car without having a particular destination in mind. We know if we’re going left or right at the end of the road, and if we’re going into town or in the opposite direction.
If we’re undertaking a longer journey, we know if we have enough petrol or diesel in the tank to get us there; otherwise, we glance at the fuel gauge and make a mental note to stop at the garage and top up before we hit the road.
Well, to draw a comparison, it would appear that if our retirement could also be regarded as a ‘journey’ – except that it’s measured in years, not in miles – then while we all know we have the same destination in the end (the graveyard), many of us have no idea how long we’ll take to get there.
That means we cannot know how much ‘fuel’, ie pension income, we will need to get us there.
Before I torture this metaphor completely to death, let’s put it another way.
A new report from Aviva shows that many of us are in real danger of running out of money in our final years, those crucial years towards the end of our lives where we could need even more than before for healthcare and other needs.
The reason for this is that we are completely underestimating our own probable longevity.
The fact is, we are the generation of the “wellderly”, and improved lifestyle and better healthcare during our lifetimes is forcing up our life expectancies all the time.
For instance, if you have an infant child or grandchild this year, did you know they stand a one in three chance of turning 100? Or that the number of 100-year-olds in the UK was 14,000 in 2013, but is expected to multiply by nearly eight times, to 111,000 in 2037?
These numbers come from those nice people at the Office of National Statistics. Now wouldn’t you just love to go for a drink with a group of them boys?
The issue of longevity-based planning is in the limelight right now, because of the new freedoms we have just received governing what we do with our pension savings. Since April 6 we are now free to draw out all of our pension immediately, or over a number of years, and spend it as we wish.
There is no longer a requirement to buy an annuity to turn our money into a pension income; we can blow the lot on a sports car, a holiday home, or in a card game at the famous poker tables of Las Vegas.
However, if we get the planning wrong with our money, well, the old phrase could well be the case for our pension: “What happens in Vegas … stays in Vegas”.
So let’s take a closer look at what Aviva heard, in its survey of a large cross-section of pension savers over 55, regarding their longevity. (Their report is entitled ‘Making Your Money Last in Retirement’.)
First, if you are a ‘good-living’ man with no major negative lifestyle issues (non-smoker, not a heavy drinker) then there’s a good chance you will still be in fine health at age 65. So far, so good.
However, Aviva’s research found that, while most good-living men in this category believed they would not last beyond 80 years old, the reality (based on data from the Institute and Faculty of Actuaries) was that a third of them would make 89, living at least a full a full 8 years longer than they are expecting to.
For a healthy 65-year-old woman, Aviva found your most likely age of death is about 90, and yet most women in its survey were underestimating their probable lifespan by nearly five years.
Aviva summed up this confusion by saying people have to be aware that ‘the older we get, the older we are likely to get’.
Their conclusion was that, especially now that we’re free to use ‘income drawdown’, taking little bites out of our pension pot as we go through our retirement, we need to know exactly how long we may have to make the money last, or face ‘pensioner poverty’ in our declining years.
It’s pretty clear that talking to our independent financial adviser, who can give us a much clearer idea of how long we personally are likely to live, is a sensible move.
As Max Asnas said, money is what you need to have in case you don’t die!
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 7188 6005
