Living to age 100: How to make your pension last longer

At a glance

• The number of people aged 100 or over in England and Wales has doubled over the past 20 years, according to the latest figures from the Office for National Statistics (ONS)¹. Last year, there were an estimated 15,330 centenarians, marking the first time the number had jumped above 15,000.
• Many of us dream of having a long and healthy retirement. But, living longer brings its own financial planning challenges.
• In a nutshell, how do you make your pension last as long as you do? How do you ensure your savings can give you a comfortable lifestyle while also thinking ahead to other things like care costs and leaving an inheritance?

Prepare to live to 90, 100 or beyond

The number of people hitting the 100-year milestone has reached a record high. There were an estimated 12,500 women aged 100 or over in England and Wales last year, and an estimated 2,830 men, according to the ONS. The number of people in their 90s has also surged. Almost half a million (548,280) people are now in the 90-99 age bracket. About two-thirds of nonagenarians are female.The first thing to do to prepare for a potentially long retirement is to work out what sort of income or nest egg you’ll have when you stop work. You can get a state pension forecast on gov.uk. Plus, use a pension calculator to see what you’re on track to get from any personal and workplace pensions.Next, consider increasing your pension contributions. If you get a pay rise or a new job, that’s an ideal time to reassess whether you can bump up your contributions, even if it’s just an extra 1% of your earnings. Your employer may also pay more into your pension if you increase your contributions. Boosting your pension now will put you in a stronger position for when you do retire and you’re trying to manage your money.

How the number of nonagenarians and centenarians has surged over the past two decades

YearPeople aged 90 to 99People aged 100 and over2004361,0007,6302014484,15012,6002024548,28015,330Source: Mid-year population estimates of the very old, England and Wales, ONS

Consider when you’d like to retire

The next thing to think about is when to retire. If you enjoy working and/or you’d like a few more years to build up a bigger nest egg, it could make sense to push your retirement date back.Alternatively, you could “phase” your retirement by switching to part-time work and reducing your hours gradually. This means you can keep earning, continue paying into your pension, and have time for other things, like hobbies and spending time with family.

How to access your pensions in retirement

So, now you’ve retired, you’ll need to consider how to draw money from your pensions. Claire Trott, Head of Advice at St. James's Place, comments: “We can spend a third of our lives, if not more, in retirement, so our pensions can easily dwindle away if not taken care of, especially if you take out too much too soon.”To ensure your pension pot lasts as long as you do, the safest route is to buy an annuity. This pays out a guaranteed income for life in exchange for your pension pot. However, this is an irreversible decision, and it means there is no money left to provide an inheritance for loved ones.Some people like to mix income drawdown (where you keep the pension invested and withdraw money whenever you like) with annuities. For example, you could buy an annuity with one pension pot to cover basic living costs, and have another one in drawdown where you use the cash to fund “extras” like holidays or a new kitchen. Alternatively, you could use drawdown at the start of retirement, and buy an annuity later, at, say, age 80, if you’d prefer some regular, guaranteed income.

“Being as tax-efficient as possible is one of the best ways to make your money last”

Claire highlights the need to think carefully about tax. Most savers can take 25% of their pension pots tax-free. “One thing to consider is if you need to access all of your tax-free cash, which can be very tempting, but once outside of the pension it is much easier to spend,” she says.If the pension scheme allows, rather than taking the tax-free cash as a lump sum, you could opt to have a quarter of each withdrawal tax-free while the remaining 75% is taxable. Alternatively, you could use the lump sum to buy a ‘purchased life annuity’, which provides a guaranteed income, but you are only taxed on part of the income received. This can be useful if you don’t need the full lump sum immediately and you’re happy to swap it for a regular, tax-efficient income either for a fixed term or for the rest of your life.“Being as tax-efficient as possible is one of the best ways to make your money last as long as possible, so taking holistic advice across all your assets can mean a significant amount of tax-free income each year,” notes Claire.

How to create your ultimate retirement masterplan

It’s exciting to think about finishing work and enjoying a nice, long retirement. We can help you maximise your savings and create a tax-efficient plan that can support you for potentially 30 or 40 years of retirement. This includes providing an inheritance for loved ones and planning for care costs as well as budgeting for the fun stuff like holidays and hobbies.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

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