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How to prepare your pension to live to 100

100 years old birthday cake to old woman elderly celebration with granddaughter pension
More people are living longer, so how can we make sure our pension and retirement savings last as long as we do? (MEDITERRANEAN via Getty Images)

Recent figures revealed there were over half a million people in the UK aged 90 or over in 2022 and more than 15,000 people aged 100 or more. This number has doubled in 20 years. The ranks of centenarians are still dominated by women, but men are catching up. Twenty years ago, there were 8.2 women over 100 to every man: now it’s 4.5.

It means that despite all the health challenges thrown at us in recent years, we’re defying them all, and men and women are living to a ripe old age. This is largely exceptionally good news. Who doesn’t want to live longer? However, it comes with a sting in the tail.

Despite life expectancy growing, the period of our lives we’re expected to remain healthy for has shrunk since 2015. A baby boy currently has a healthy life expectancy of 63 years, and a baby girl 64 years. It means we need to make plans not just for a longer life, but one where we might not be in brilliant health for a major part of it.

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Read more: Tackling the myths holding back your pension planning

At the same time, because we’re living longer, the government has been increasing the state pension age, and is expected to keep doing so.

At the moment, anyone born on or after 6 April 1977 will have to work to the age of 68, and there’s still the chance that date could be brought forward, which means there will be some people who may not be able to work up until they get their state pension.

pension
Once you stop work, you may want to ensure you have some guaranteed income to cover the essentials. For expenses beyond the basics, you might want to draw from your pension pot. (Jenny Elia Pfeiffer via Getty Images)

How to financially prepare for later life

It means we need to prepare as much as we can for our later life. We need to consider how we would cover the cost of care if we needed to, and how we could make our retirement savings last as long as we do.

We can access our pensions from the age of 55 (although that’s set to rise to 57 soon), so we need to build a pension we can afford to draw on for 30 years or even longer.

The auto-enrolment rules are set to change, bringing people into workplace pensions earlier in life. However, we shouldn’t rely on this entirely. It’s worth using a pension calculator to work out where you stand right now, and what you need to do to build the retirement income you need – even if you live longer than you initially expected.

If you can’t afford to boost your contributions right now, then you can pledge to do so as soon as you get a pay rise, before you have time to get used to the extra cash in your pocket.

There will also be decisions to make when we get closer to retirement. Given how long you’re expected to live, it’s worth thinking of it not as one block, but as several phases. In the early years, you may want to continue to work part-time, so you only need to access a smaller sum – but without pushing yourself to work all hours.

Read more: Five steps to boost your pension prospects in 2024

Once you stop work altogether, you may want to ensure you have some guaranteed income to cover the essentials. You can do this through things like the state pension and defined benefit pensions, which specify how much income you get every month until you die — rather than just how much is paid in.

You can also purchase an annuity. This is where you give a lump sum to a company and in return they give you an income for life. You don’t need to buy an annuity with the whole pot from day one, you can just cover the income you need at that time.

For expenses beyond the basics, you might want to draw from your pension pot. If you only take the income generated by your pension at this stage, you won’t risk running out of cash if you live longer than expected.

As you get older, you’ll get a better rate on annuities, because they’re priced according to how much longer the company expects you to live. As you get older, not only do you have fewer years left, but you may also have picked up a health condition which persuades them to offer an even higher rate. So once they offer better value, you may want to guarantee more of your income — or you may want to leave a sum in case you need care later in life.

There are no definitive right and wrong answers, you just need to decide what’s right for you. Because while we all want to live longer, we want to do it in good health and with enough cash to enjoy our retirement, so we can celebrate becoming a centenarian in style.

Watch: When should I start paying into a pension?

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