In the UK, we are confronted with the challenge of an ageing population. Lots of us will live longer than we may well have predicted. Already, 2.4% of the population is aged over 85. Because of enhancements in nutrition and healthcare, this figure only looks set to climb.
The Office of National Statistics (ONS) currently estimates that 14.8% of women and 10.1% of men born in 1981 will live to 100. A demographic move to an older population generates unparalleled change to the way the country would function, from the world of work to the healthcare system.
Furthermore, an extended life and subsequently a long retirement, bring challenges of their own from a personal financial planning perspective.
Firstly, it necessitates the need for you to sustain yourself from your retirement ‘nest egg’ of pensions, investments and cash for longer. You need to ensure that you draw from this at a sustainable rate so you don’t run the risk of running out of money.
Secondly, there’s the question of financing long term care. If we live longer, the possibility that we will one day need to pay for some sort of care increases. Alzheimer’s Research UK report that the chance of developing dementia grows from one in 14 over the age of 65 to one in six over the age of 80.
Needless to say, there are several forms of care, varying from infrequent care at home to full time nursing care, with a range of cost levels. Most require a degree of personal funding.
The amount you pay hinges on the level of need and the amount of assets you have. Whilst the State can help with some costs, eligibility for help is limited and many people find themselves over the threshold at which state support is provided, currently £23,250 in England (national variations). This means that it’s certainly something that you need to take into account in your financial planning.
Having the income in later life to support long term care really does entail 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 vital.
There is no ‘one-size-fits-all’ sustainable rate at which to draw from your pensions and investments. Every individual has their own personal circumstances, financial situation, investment objectives and views on what risks are acceptable. However, by understanding your portfolio asset allocation, the impact of fees and charges and the risk level of your investments you should be in a better position to work out the sustainable rate to draw from your pension and others assets. Obviously, speaking with your financial planner will help you on your way to working out the right withdrawal rate for you.
Unfortunately, it is inevitable that some things will be unknown including exactly how long you’ll live and the chance of developing a health condition later in life.
Here at Charters Private Wealth, we believe it is prudent to withdraw leaving plenty of room for life’s unknowns, thus improving your chances of having a financial cushion to cope with what life throws at you.
The value of your investments (and the income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
If you have any questions around this topic, please feel free to get in touch with us directly on 01789 263888 or email firstname.lastname@example.org.