03 September 2017
People are living longer. In fact, some people can expect to enjoy a retirement of more than thirty years. And while the pension freedoms have given people more choice when it comes to how to spend their pension savings, what they don’t do is guarantee that this money will last forever.
The new freedoms also mean that people can now make decisions that they might not have made before – such as accessing their pension savings earlier, or investing their money rather than choosing a guaranteed income for life. And for some, this may mean that they run the risk of running out of money during their retirement.
According to the Office of National Statistics, our spending patterns change as we get older. For those aged 50 to 64 it averages £29,744 a year, between the ages of 65 and 74 it falls to £23,816 and it drops again to £15,496 at age 75 and over.
But what if you then need to pay for residential care at the age of 85? If we assume that the average cost of residential care is around £30,000 a year, then if you live until the age of 90, your total care costs could add up to £150,000. If you make it to the age of 100, the total cost could be in excess of £450,000 (making allowances for fee increases). And of course, some people will pay more than £30,000 a year – living in a more expensive area, or choosing a more luxurious home.
No one knows exactly how long they will live for, or how much help they will need in their later years. It is also something that becomes harder to assess as we get older.
Let’s consider an 86 year old female born in 1931 who moves to a care home. When she was born, the life expectancy for females in England and Wales was 62.9 years. However, in 2017, the average life expectancy at age 86 is now 93 which means she can be expected to live (on average) for a further seven years. This is more than 30 years more than we expected when she was born.
Another issue that we will come across is that the longer we live, the longer we will be expected to live. So how can we estimate exactly how long she will live for or how much care will cost? It’s a challenge that becomes increasingly difficult and one that we certainly need to consider when planning for retirement.