Retirement Planning and Longevity
This post is part of my series on planning for retirement. Although it’s not the best of topics to think through, retirement planning demands that you consider how long you expect to live. At least it does for me as I have a mix of money purchase and defined benefit pension schemes. Despite having a nasty auto-immune condition I’m actually extremely healthy, I don’t drink, smoke, have any recent family history of heart disease or cancer and my blood work shows no risk factors for diabetes, or heart disease. So I expect to live a long time. I’m also lucky to have simple tastes in life, low cost hobbies and own my own house so my expenses are low, I have a fighting chance of funding that long life.
Breaking this down in more detail then:
- I expect to live longer than the average for my generation, probably into my 90’s
- I expect that within 40 years medical advances will have pushed my life expectancy well beyond 100 maybe a lot further
- I enjoy life, keep myself fit, eat well, don’t stress out, get plenty of clean seaside air, am easily entertained and have 4 children so I expect to have plenty to live for during those many years ahead of me
- The advances in technology that we can expect in the next few decades will transform entertainment, especially for people getting older, so hopefully I won’t get bored
- The last 10 years have taught me that the rough and tumble of a large enterprise are inconsistent with my auto-immune condition in the medium term, so I need to retire early, some time between 55 and 60, I’m not going to be working into my 70s!!
- The endless stream of redundancies flowing through my company may hit me before 55 and getting another job as a chronically ill 55 year old are pretty slim to non existent
Conclusion, Debbie and I need enough income to cover our expenses for a long life! This is my current strategy:
- If I’m made redundant next year, aged 51, I will fund the following 4 years until I reach 55 mostly from savings with some state benefits for the kids, it will be a real struggle! My wife Debbie is going back to University next year, but hopefully she will be earning again once she finishes her diploma.
- If I’m made redundant after I’m 53 then I can comfortably survive on savings until retirement.
- Once I get to 55 I will take the full tax free lump sums from my two money purchase pensions, and draw down from my remaining money purchase pension pot my tax free personal allowance of £10K each year until I’m 65. This should be enough to comfortably cover my expenses.
- Debbie can draw one of her defined benefits pensions from aged 60, but she will probably defer that until we need it at 65
- Once we get to 65 Debbie and I will start to take our defined benefits pensions (Debbie has two, I have one). These are all CPI or RPI linked and so should be safe forever
- I will then probably take the remainder of my money purchase pension pot, which should have a few hundred thousand left and buy an index linked annuity. Again this should be safe for life, but it might be better to leave this as a pool of cash invested in the stock market and draw on it as required for big events. The risk would be low given that I have the other pensions as a cushion.
- When we get to 67 we will start to draw the index linked state pensions which should also be safe for life
So by 67 all of our pensions will be index linked to either CPI or RPI and we will still have about £50K in the bank. The pensions should cover our basic lifestyle costs and some simple luxuries, so we should be fairly confortable.
My challenge between 55 and 65 will be to discover some simple, sustainable, low stress way to top up our income a little just in case, I want a way of earning money that’s flexible, takes no more than 10 hours a week and earns at least £10/hour.
I have a few concerns with this plan:
- The stock market crashes before I can extract the money from my money purchase pensions that I intend to live on between 55 and 65
- Rampant inflation erodes the value of the cash that I’ve saved and the tax free pension lump sum that I intend to live on between the ages of 55 and 65
- The stock market crashes before I can buy an annuity with what remains of my money purchase pension pot
- The pension providers break their commitment to keep pace with CPI/RPI
- Another financial services meltdown that compromises the pension/annuity providers ability to keep paying, probably caused by all these pensioners living much longer than expected
- We need to move into a care home or pay other medical expenses not covered by the NHS
I do have some contingency though just in case any of the above happens:
- It’s conceivable that I could keep on working beyond 55
- Debbie is hoping to get a teaching job in a years time and keep working for a while, maybe until she is 55 or 60
- I might find a new source of income when I retire
- One or more of the four kids might be able to help out their poverty stricken parents
- We can downsize our house or do equity release
There are a few options to this plan. The biggest is that I’m currently assuming that we stay in our existing house with our existing expenses. One option we are considering is moving to a more expensive house that might be smaller but is hyper insulated and has a bigger garden, allowing us to significantly lower our expenses. This would make sense if we expect to live a long time, but would tie us down considerably and probably mean moving to a more isolated location, neither of which appeal. The other option is to buy a slightly smaller house, but in a more stunning location we currently favour the beach front at Cleveleys.
The previous post on retirement showed a beautiful sunset, but really a sunrise is more applicable for retirement and that’s what this post deserves. I took this picture while out with Anna on my 50th birthday, from Granny’s Bay a few minutes from our house.