Life expectancy is increasing globally and there are signs the UK is increasingly buying into the idea that health and wellness trends could be key to a longer life. But as we expend energy for a healthier future, are we putting aside the resources we’ll need to fund a longer, more active retirement?
There’s evidence we’re making small concessions to better health everywhere.
Plant-based meal options have gone from niche to mainstream and more consumers are experimenting with specialist diets like keto and paleo.
Wearable tech is transforming how we monitor our physical health, from step count to deep sleep patterns. Elsewhere, mindfulness and mental health are topics of open conversation, and research suggests as many as one in 10 are using hot or cold therapies, like ice baths, every week.
These small changes are part of a bigger phenomenon. The ‘Longevity Movement’ is beginning to gain real traction in the developed world, and the study of geographic enclaves where populations display unusually high life expectancy – Blue Zones – is achieving cult status.
Setting ourselves up for longer and healthier lives is a good thing. But while we’re investing in our health, are we taking action to also extend the longevity of our wealth?
The longevity gap
The Longevity Movement will have profound implications for our future financial security. If we aren’t careful, we’ll set ourselves up to live longer but without the resources for the journey. Not only will savings pots need to stretch further, but if we arrive at retirement fitter and healthier, we’ll have more appetite to lead and fund a more active lifestyle.
Based on average income figures provided by the Pensions and Lifetime Savings Association and calculation by Nutmeg, an individual pensioner aiming for a comfortable or even moderate retirement lifestyle level would need a retirement pot at 65 of between £1.3m and £1.8m. And that’s without considering the impact of increased longevity.
Most analysis already points to the same alarming conclusion: many aren’t saving enough for a comfortable retirement.
Nearly half of non-retired adults plan to use the state pension to fund their retirement, and only half of UK workers know how much they are contributing to workplace pensions.
A number of factors may be at play. Many people – one in eight, in fact – are banking on an inheritance windfall, or that contribution shortfalls now can be made up on future, higher salaries – but it’s difficult to recoup missed long-term investment growth. And then there’s more immediate financial commitments getting in the way like higher mortgage repayments, home renovations and regular holidays.
The Government is reviewing the pensions landscape, and the new Consumer Duty standards – designed to help ensure consumers are getting good outcomes from providers – may help to boost financial outcomes, but there’s still a big gap to bridge.
Rethinking drawdown
The challenge presented by the Longevity Movement is not just about saving enough now, but also managing an extended retirement.
Conventional wisdom for nearing and entering retirement is to rebalance portfolios towards safer investments – gilts and income portfolios and away from higher risk, but higher potential reward equities. Nobody approaching retirement wants to crystallise a loss of capital.
But, with consumers expecting to be drawing income from their pension for 27 years on average – almost the same amount of time someone graduating from university today would expect to work before their 50th birthday – do we need to rethink pension pot investments?
What’s right for each individual will differ, but decumulation strategies could be due a shake-up.
Self-preservation
Finally, the Longevity Movement suggests lots of small changes for a compounding impact on our health. One tech mogul has even infused a litre of his son’s blood to combat ageing. More extreme measures like blood infusions aside, there are small steps we could take to improve financial health in the same vein…
If you can afford to, upping monthly pension contributions by 1% will only shave a small amount from overall take-home pay. But it will make a noticeable difference to retirement savings.
Try to take advantage of auto-enrolment perks like employers matching contributions and the tax relief on pension savings. This can be transformative over a lifetime compounding in the market.
Consolidation is also an option. Diagnosing pension health can be difficult with multiple pots hidden away behind lost paperwork, forgotten passwords, and poor transparency about fees and performance.
While it’s always important to check you won’t lose any benefits, bringing together small DC pots in one place can be a good way to root out low returns or costly management fees, and get a clearer picture of your wealth’s longevity.
Time for an ice bath
More of us are living longer, and we’re investing time, money and effort into better wellbeing. But reaching the pension Blue Zone doesn’t need to be a chore.
When it comes to retirement savings, it’s always best to start early. And if you’re worried about what lies ahead, financial advisers can help you understand if you’re on track.
Never mind the Pilates – isn’t it time we all treat our pensions to an ice bath?
Claire Exley is head of financial advice and guidance at Nutmeg, the JPMorgan-owned digital wealth manager
