In the UK, we are faced with the challenge of an ageing population. Many of us will live longer than we might have expected. Already, 2.4% of the population is aged over 85. Because of improvements in healthcare and nutrition, this figure only looks set to rise.
The Office of National Statistics currently estimates that 10.1% of men and 14.8% of women born in 1981 will live to 100. A demographic shift to an older population brings unprecedented change to the way the country would operate, from the healthcare system to the world of work.
In addition, a long life and subsequently a long retirement, bring challenges of their own from a personal financial planning perspective.
Firstly, it means you have to sustain yourself from your retirement ‘nest egg’ of cash savings, investments and pensions. You need to ensure that you draw from this at a sustainable rate so you do not run the risk of outliving your money.
Secondly, there is the question of funding long term care. If we live longer, the chance that we will one day need to fund some sort of care increases. Alzheimer’s Research UK report that the risk of developing dementia rises from one in fourteen over the age of 65 to one in six over the age of 80.
Of course, there are many different types of care, ranging from full time care to occasional care at home, with a variety of cost levels. All require some level of personal funding.
The amount you pay depends on the level of need and the amount of assets you have, with your local council funding the rest. This means that it is definitely something that you need to take into account in your financial planning.
Having the income in later life to sustain long term care really does require detailed planning. Because of the widespread shift from annuities to drawdown, working out a sustainable rate at which to withdraw from your ‘nest egg’ is essential.
There is no ‘one-size-fits-all’ sustainable rate at which to draw from your pensions and savings. Every person has their own requirements, savings, liabilities and views on what risks are acceptable.
There are some things which you will be able to more accurately plan when working out the sustainable rate to draw from your pension. These include your portfolio asset allocation, the impact of fees and charges and the risk level of your investments. Speaking with your financial adviser will help you on your way to working out the right withdrawal rate for you.
There are, however, some unknowns. These include the chance of developing a health condition later in life and exactly how long you will live. It is best to withdraw leaving plenty of room for these to change unexpectedly, improving your chances of having a financial cushion to cope with what life throws at you.
7 November 2018
The views expressed in this blog do not in any way constitute advice and are specific to the date noted. As time passes the facts can change and readers should consult their adviser for up to date advice on any matters covered within the blog. Invest Southwest offers an initial review, which is free of charge, however long it takes. From this we will be able to confirm how we can help and give you an opportunity to decide if you would like us to. Thereafter, we will provide you with detailed recommendations and exact costs. Please note that we promise not to levy any kind of fee unless we can demonstrate a benefit to you.
