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Your future finances

What living longer means for retirement planning

22 March 2019

3 minute read

Andrew Hall, Director of Barclays Wealth & Investments, and Chartered Financial Planner, considers the benefits of thinking long-term.

Grace Jones, the UK’s oldest person at 112 years old, was recently reflecting on how much had changed during her lifetime1. This isn’t that surprising given her incredible years.

Not all of us will enjoy such longevity, although a 60-year-old male does have a one in ten chance of reaching 99, and a 60-year-old female a one in ten chance of reaching 1012. For those of us aiming for retirement around age 60, how much long-term thought has been given to the changes that might occur over our own future years?

While Grace was reflecting on years gone by, many of us will be pondering what the future has in store.  Short-term political turbulence? Undoubtedly. In a world characterised by volatility, complexity, uncertainty, and ambiguity3, change, and increasing acceleration in the rate of change, feels likely. Things become less clear the further out we think – but it remains important to keep this long-term outlook.

The financially minded will consider the impact of inflation over a long-term time period. The average UK house cost £226,9064 in 2018. Forty years ago, the same ‘average’ house would have cost £13,820; a loaf of bread 28p, and a pint of milk 11p5. A long and happy retirement will surely see increasing costs of living, and we should be thinking about this when we think about our long-term spending requirements.

The costs of living might also be impacted by the way we buy things. The rise of the Circular Economy6 and a shift towards subscription-based consumerism will further impact our retirement planning.

A well-known furniture manufacture recently announced a test of a new business model – a move away from purchase to subscription. Many of us will lease our vehicles, music and television streaming, and other leisure activities in the future - all paid for with regular monthly subscriptions. This transformation implies significant changes for our retirement budgeting, with higher demands on income (rather than capital) than we perhaps are currently expecting.

Thankfully, for those imminently at retirement, options for drawing benefits have rarely been more flexible. Pensions Freedoms, introduced in 2015, provide flexibility to tailor pension benefits to changing spending requirements throughout retirement. A recent client was able to access benefits to support a short-term bridge between her retirement and a new non-exec position, with the ability to leave remaining assets invested while completing this transition. This type of flexibility is very useful, but requires careful consideration to ensure long-term requirements are not usurped by short-term wants.

Additionally, for those where retirement is still some way away, some exciting savings options exist. Pensions savings, ISAs and Lifetime ISAs all offer tax-efficient investment growth, and can offer suitable homes for long-term investment strategies tailored to your own approach to, and capacity for, investment risk. For those with scope to fund over and above available pensions and ISA allowances, and with capacity to accept associated higher investment risks, Venture Capital Trust products might offer exposure to alternative asset classes, with the benefit of tax-free dividends payable, though it is important to bear in mind that tax rules might change in future years and their effects depend on individual circumstances. Rarely do retirement plans only look to pension funding in the long-term – many individuals now build a portfolio of assets to support their future.

Regardless of your starting point, it’s likely that decisions made today will need to be adapted and revisited as your requirements change over time. Managing retirement investments, understanding options available and adjusting plans over time are all key elements to a successful retirement plan. Keep in mind that investment can fall as well as rise in value.

While few of us may reach the remarkable 112 years of Grace Jones, we are growing older as a population. As the cost of living increases, and the way we consume everyday items changes, thinking long-term is likely to be at the core of any retirement plan.

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