Financial planning for the 100-year life
We all want to live a long and full life, but the idea of living much longer than the assumed ‘three score years and ten’, has huge implications on our financial wellbeing in later life. How can financial advisers help clients plan for a 100-year life?
Life expectancy at birth has been rising steadily over the last century. According to the Office for National Statistics (ONS), over the last 100 years, it has increased by nearly three years every decade[1]. In 2020, there were more than 600,000 people aged 90 and over in the UK, more than two and a half times the number in 1990[2]. Although these increases are expected to slow in future, according to Professor Andrew J Scott, a world-leading expert on the impact of ageing on society who recently spoke at the intelliflo conference, a child born today in the UK has a more than 50% chance of living to 105.
Professor Scott believes an important question when people are living longer is what you’re going to do with all the extra time. He estimates that you have around 100,000 more productive hours (the equivalent of the weekday 9-5) if you live to 100 versus living to 70. How will that change our outlook in our fifties and sixties, when instead of expecting to live for another decade or two, we anticipate another forty or fifty years of life? How will we make sure that our extra time is fulfilling and happy?
To meet the financial needs of a longer life, people will need to work longer or save more, or, more likely, do both. Most developed countries already plan to raise their state pension age over the next twenty years. We’ve seen unrest in France following the government’s decision to raise the pension age from 62 to 64 by 2030. The UK, Netherlands, Belgium, Spain and Germany are set for it to rise to 67 by the end of the decade, while in Denmark, it’s due to increase to 69 by 2035[3].
However, working longer requires people to be fit enough and have the skills to be able to stay in employment. Increasing longevity impacts not only working and retirement patterns, but also physical and mental health, relationships and intergenerational wealth transfer. Clients may not be able to continue working in their sixties and beyond, divorcing and/or remarrying in later life is likely to become more common, younger people are likely to wait longer for inheritances. All of this will have a significant impact on a client’s finances, not only in retirement but throughout their life.
Professor Scott predicts the shape of people’s lives will change from a three-stage model – education, work, retirement – to a multi-stage model, where there’s greater fluidity between phases. Education may need to be something you return to, as few people will have the skills to carry them through a sixty-year career, caring for older generations may have an impact on our ability to work full time, retirement is likely to be phased with flexibility between work and leisure, and funding of care may be required – possibly over a long period.
Helping clients navigate these different phases and manage their finances while maintaining a good quality of life poses a serious challenge for advisers. Each client’s multi-stage life is likely to look very different, so will require a far more personalised approach to advice and risk than we see in a traditional retirement advice journey.
Technology will play a crucial role in delivering financial advice that meets client needs throughout a 100-year life. Already practice management software can combine financial information from different sources to create a complete picture of the client’s finances, as well as linking family members to make multi-generational planning easier. Virtual meeting technology makes it easier for clients to schedule meetings at times convenient to them, around work or other commitments. Cashflow planning tools help model a client’s wealth throughout their life and assess the likelihood of achieving their desired future to inform the required levels of saving and risk.
Looking forward, I can see artificial intelligence supporting human advisers, by providing data to inform the advice journey. Fitness trackers can already check our heart rate, encourage us to exercise and help us manage our weight. Wearable devices have the potential to go much further in monitoring our health, providing data to help prevent issues, provide early diagnoses, and better determine individual longevity.
Life expectancy is a key part of later life financial planning, but to deliver suitable advice in the future, advisers will need to consider the wider impact of increasing longevity across their client’s whole life. Using technology will be key to supporting long-term decision making, and ensuring clients continue to achieve their financial goals, no matter how long they live.
[1] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/englishlifetablesno17/2015-09-01
[2] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ageing/bulletins/estimatesoftheveryoldincludingcentenarians/2002to2020
[3] https://www.etk.fi/en/work-and-pensions-abroad/international-comparisons/retirement-ages/