Can You Afford to Live to 100?

Reading time: 7 minutes

 

​​As people live ever longer lives, we look at the financial challenges this might present in future. We also consider what action we can take today to ensure we can all afford to live a long, happy and fulfilling life.

 

People are living longer – much longer

In the UK, we enjoy some of the longest average life expectancy anywhere in the world. We currently rank 27th out of 183 countries with an average life lasting 81.2 years. However, within this figure, there are huge gender, regional, socio-economic and other variations. For example, the average person in Kensington and Chelsea can expect to live to 83.3 years while those in Blackpool average just 74.7 years.

Of course, averages mask a variety of numbers and many of us now know of several people who have lived well into their 90’s and maybe even a few that have reached the grand old age of 100. The number of centenarians has been rising steadily in recent years with the numbers almost doubling from around 8,000 to 16,000 in the past decade alone. There are still relative few people who get to celebrate their 100th birthday, with a birthday telegram from Her Majesty still a rare occurrence – but all of this is slowly changing.

Estimates from the Official of National Statistics (ONS) suggest that around 1 in 3 children born today will reach their 100th birthday. Not only are there going to be significantly more older people, there are going to be large numbers of centenarians in the decades to come.

The ONS has put together a great tool which will project your life expectancy and show the likelihood of you reaching your 100th birthday – give it a try.

If we look at a couple of examples:

 

• A woman aged 65 today is expected to live to 89 on average and has an 11% chance of reaching 100.
• A woman aged 25 today is expected to live to 91 on average and has a 24% chance of reaching 100.

As a society, we’re living longer, healthier lives. Advances in medicine, a better understanding of lifestyle choices, the reduction of dangerous and damaging vocations and improving diet all help contribute to this upwards trend. While this is to be welcomed, it can put huge strain on our finances.

 

The impact on our finances

Our financial burdens are at their highest when we are young (schooling, medical, etc.) and when we are old (care, medical, etc.). With more and more older people, this is going to put a huge strain on our finances – both in terms of our personal situation and the country as a whole.

The welfare system and NHS are likely to come under continued strain and there may need to be limitations put on what the state can provide.  As a society, we will have to contribute significantly more into these systems and probably expect less out.

State pensions will also come under pressure, especially as they currently enjoy the ‘triple lock’ (rising every year by the highest of price inflation, earnings growth or 2.5%). The state pension age is rising as life expectancy increases, with it likely to hit 70 for those who are 20 years old today.  Many younger people worry that their state pension age might be even later or even whether they will get a state pension at all. Even pushing the state pension to age 70 will mean many people being retired for 30 years or more.

When it comes to our own finance, it is a similar story. Old age is getting more expensive. Not only are we living longer, there are more expensive drugs and therapies, the cost of long-term care (both in-house and residential) and even the cost of funerals are all rising sharply and being used for longer.

The reality is that we will all probably be a little bit poorer and have to save a little bit more for a little longer to survive an average retirement. To really enjoy our later years, it going to take a great deal of cash and careful planning to ensure we never run out of money and have our needs taken care of.

 

What can we do now to fund our latter years?

The first thing to do is to start as early as you can.  The earlier you start, the better your chance are of being able to fund a long life and still be enjoying yourself when you reach 100.  It is never too late to start though.

Get investing. Whether it’s in a pension, a lifetime ISA, regular ISA or any other type of investment, put some money away. If your working life is around 45 years (65-20) and you think you might live to 95 then you have to somehow fund 30 years of retirement during a working life of 45 years. It’s not rocket science to think you have to put away a fair chunk of your income if you want a good standard of living in later life.

The keys questions are really ‘how much?’ and ‘how?’. These are key components of any good financial plan. Working out how much you may need covers factors like your future lifestyle, expected investment returns and inflation. How you save comes down to your tax position, the amount you’re looking to invest and what access you need to your money.

Many people have to save much more than they ever thought they would need to. It is easy to underestimate how long we may live for and overestimate how much we can safely withdraw. Recent studies have shown it may only be ‘safe’ to withdraw just over 3% of your investment portfolio each year. So think about how much you may need to live on in retirement, take off around  £8k a year for your state pension if you think you are entitled to one and multiply the rest by 30 to give you some sort of rough target. It’s probably a pretty big, pretty scary number but remember, the sooner you take action, the better your chance of achieving it.

 

Beware of inflation

Inflation catches many people out. They think about their life at 100 and what kind of income hey may need – forgetting that prices are escalating all the time. £1,000 today won’t buy you £1,000 worth of things when you’re 100 so you’ll probably need much more than you first thought. Again, this is where a good financial plan can come in, showing you exactly how much you need to save and discounting back into today’s terms.

 

So, can you afford to live to 100?

With a proper financial plan and the determination to save and invest throughout life, we believe that everyone can afford to live to 100 and beyond.  The keys are to start early, get yourself a plan and stick to it, review it regularly and think about how you might need to live in older age. By the middle of this century, living to 100 will be commonplace and by the end of it, it will be almost the norm. We had all better start thinking about this seriously to ensure our 100th birthday really is a time to celebrate and to ensure we can all live fulfilling lives well into our second century on this planet.