How do you picture your retirement? Maybe you’ve got a list of things you want to do and places you’d like to see. Or perhaps it’s more about the lifestyle you’d like when you finally stop working.
Turning your dreams into reality takes careful planning and budgeting. But how can you do that if you don’t know how long your money will need to last?
A beginning and an end
On the one hand, working out the length of your retirement is pretty simple. There’s a start point – when you retire – and an end point – when you die. But working out the details is more complicated than that.
People are living longer
The average global life expectancy of someone born in 2015 is 5 years more than someone who was born in 2000 1. The rate of increase isn’t as rapid as that in the UK, but it’s rising fast enough for 1 in 3 people born today in the UK to be expected to live to 100 2.
So what does that mean if you’re getting close to retirement now? A 65 year old in England could expect to live on average to almost 84 if they’re a man, while if they’re a woman they could expect on average to live to 86 3.
A longer life has got to be a good thing, right? But there’s a danger that you will not have planned for this extra time spent in retirement. And if the gap is large, you could end up not doing all you want or not having the level of comfort you hoped for.
Estimate your life expectancy
A good way of working out your likely life expectancy is through calculators that take into consideration your age, gender and lifestyle. Looking into your family history could also help to refine indications of how long you are likely to live.
Life expectancy doesn’t stand still
There’s an interesting thing that happens to life expectancy estimates as you get older. The longer you live, the longer you’re likely to keep on living.
Remember we said that a man who is 65 years old today could expect to live until he’s nearly 84. Well, a man who is 70 today could expect to live to nearly 86.
This means that it’s worth revisiting your retirement plans regularly to make sure you’re prepared for the most likely outcomes.
When can you start your retirement?
This comes largely down to what you can afford and your ability or desire to keep on working. You’ll need to find out how much you’ll get from your State Pension and any private pensions, savings or income.
The State Pension age is currently 65 for men and is gradually increasing from 60 to 65 for women. And there are further increases planned which will see the state pension age rise to 67 for both men and women between 2026 and 2028.
If you have a private pension, it will also have an age from which you can start taking money from it. It’s usually 55, but check the details of your plan or talk to your provider for details.
Getting the right balance
Once you’ve got a good idea of your life expectancy, pension pot and any other retirement income, you can make an informed decision about when you want your retirement to start.
You may choose to start your retirement as early as possible – particularly if work has become physically hard – or it might be better for you to keep working for a while to increase your pension pot and reduce the number of years it needs to provide for.
This really depends on your personal circumstances and what you want and need from your retirement.
Again, there are tools that can help you to work out the lump sums and regular income that should be available to you. And by moving around some of the dates and figures, you can get a real sense of what’s going to work for you.
Plan, refine and take action if necessary
With thought and planning, it really is possible for you to take control of your retirement. Once you get an idea of its length, your likely pension income and how you want to spend that period of your life, you can identify and address any gaps.
Whatever you do, don’t just leave it to chance.