Without careful planning, underestimating the length of your retirement could mean that your money doesn’t stretch as far as you’d like. We look at the hidden risks in retirement planning and what to consider, so you can enjoy your later years, instead of outliving your money.
What is the biggest risk in retirement planning?
Living longer than planned and running out of money before you die is one of the biggest risks in retirement planning. Nobody wants to think about their death, but many people underestimate how long they will live and don’t save enough funds to support their later years. If you underestimate how long your retirement might last, your savings may not go as far as you’d like. So, it’s important to plan carefully to reduce the pressure on your finances.
In the UK, the average retirement age is currently 65 for men and 64 for women. According to the Office of National Statistics, the average lifespan for a man is 79 years, and 83 years for a woman. Therefore, if a married couple retire at age 65, they’ll need enough funds to support them for the next 14 to 19 years. If you start accessing your private pensions at age 55 (or 57 from 2028), your retirement funds might need to stretch from 24 to 28 years.
Why is it important to manage risk and prepare for retirement?
As no one knows how long they will live, planning can be difficult. This longevity risk is just one of several key factors to consider. From unexpected big life events to rising care costs, life can bring many challenges that can have an impact on your financial planning.
Did you know that your local council will only fund your social care if you have £23,250 or less in savings? However, if you need to go into a care setting and want to choose your residential or nursing home, your family can top up the cost of care. It’s wise to exercise caution with care-related estate planning to avoid attempting a ‘deliberate deprivation of assets’. For more information, see our previous blog Property and paying for care.
As a quick guide, the average cost of care in the UK is as follows:
- Home (domiciliary) care: The cost of a care service that supports someone in their own home is around £29.49 – £32.14 per hour. These costs vary by region and for more specialised care, for example, dementia will be higher, £35 – £50 per hour.
- Live-in care at home: The cost of a live-in care service, where a care assistant provides someone with dedicated 24/7 support at home, is around £1,200 – £1,500 per week. London rates are generally around 24% higher than the national average.
- Residential care home: The cost of care provided in a residential care home averages around £1,406 in England, with regional variations between £650 – £2,000 per week. Care homes in London and the Southeast are the most expensive.
- Nursing home: The cost of a nursing home is more than a residential home because they provide additional medical support. Averaging £1,558 in England, costs can range between £1,000 – £2,000 per week depending on people’s needs.
How to protect money from running out during retirement
When you’re planning your retirement funds, it’s important to plan ahead and protect against running out of money. There are various ways to achieve financial security when you retire. Start by gaining a good understanding of your cash flow and financial position.
Changes in inflation and low investment returns could have an impact on your future retirement savings. So, carry out a cash-flow planning exercise to help you plan ahead and mitigate against any unforeseen risks.
By getting an accurate view of your current and future financial position, you can make sure you have enough funds to support you throughout your retirement. As an example, our financial planners use sophisticated cash-flow planning software with our clients to look at the money coming in and out throughout their lifetimes. This enables us to create a Lifetime Wealth Forecast, which forms a key part of our clients’ financial plans.
Nobody knows what the future holds, but we can take adequate measures to both protect ourselves and to fund our retirement. It’s important to make sure you have a financial safety buffer for you and your family. There might come a time when your adult child or grandchild needs financial support. You might need to fund an urgent home repair, deal with a family emergency or a medical crisis. And a little financial planning can go a long way.
Voted ‘Best Retirement Advice Firm’
Did you know that Balance: Wealth Planning was voted ‘Best Retirement Advice Firm’ in 2024 at the Money Marketing Awards? As one of our clients, you’ll benefit from our award-winning expertise with personalised retirement strategies designed for your lifestyle and goals. Our holistic approach covers every aspect, from pensions to wealth management.
At Balance: Wealth Planning, our experienced financial planners will help you avoid outliving your money in retirement. We’ll create a Lifetime Wealth Forecast for you by carrying out a cash-flow modelling exercise, which factors in wealth erosion and inflation. Our team offer unbiased advice on investments and withdrawal strategies to assure financial longevity.
Please see our Big Life Events: Planning to Retire page for more information.
For retirement planning on, get in touch to speak to our financial planning team.
Sources:
https://www.pensions-pmi.org.uk/media/m51d2ciy/pmi_penas_mag_ed43_7b-part-2.pdf
https://www.pensionsage.com/pa/UK-savers-underestimating-lifespan-by-up-to-seven-years.php
https://www.fool.co.uk/personal-finance/research/average-retirement-age-in-the-uk/)
https://www.carehome.co.uk/advice/care-home-fees-and-costs-how-much-do-you-pay
