The average life expectancy is increasing and people turning 65 this year can expect to live an average 20 years in retirement, according to the latest report from insurance giant Prudential.
A better life expectancy, although a positive sign in many ways, also means that people must take steps to ensure their retirement income outlasts them. This further reiterates the need to save and invest adequately during a working life.
Prudential has identified that people retiring in UK this year will have an average annual income of £15,800.
According to Prudential, if someone qualifies for the full State Pension, they will need an estimated pension pot of around £121,000 in order to secure an annual pension income of £15,800 for a 20-year period.
As figures from Office for National Statistics have shown, a significant number of people may well live for many years longer. In such cases, a 25-year retirement for someone expecting an annual pension income of £15,800 will require accumulating a pension pot of more than £139,000, while this figure rises to £154,000 for someone looking at a 30-year retirement period.
Vince Smith-Hughes, retirement income expert at Prudential, said: “These new figures underline the importance of making retirement income decisions that address the risk of outliving your savings. If retirees choose to draw income directly from their pension fund, they need to consider if it’s sustainable to take that level of income over an extended number of years.”
“It is also important for people not to overestimate the value of the state pension as a fall back should they exhaust their retirement pot.”
He added: “When planning finances for life after work and especially securing a retirement income, a consultation with a professional financial adviser or retirement specialist can help people to make the most of their options.”
The prospect of funding a retirement for more than 20 years during old age without a primary income source seems daunting, but with careful planning in advance and seeking advice from a qualified financial adviser, you can take steps to ensure you retire on your own terms with an adequate retirement income.