Looking to live to 100? You’ll need a pension pot worth £426,000

Savers in the UK need to revise their attitude to risk if they want to enjoy a comfortable retirement.

Is having to plan your pension on the basis that you will live to 100 such a ridiculous idea?

Once, living to 100 was so rare that the UK started a tradition of sending a message from the Queen to centenarians. However, dramatic improvements in life expectancies in the UK over the past few decades has made the event increasingly commonplace.

Currently, there are around 15,000 people aged 100 or more in the UK. The Office of National Statistics expects that to rise to 100,000 people by 2053, a more than sevenfold increase in just 35 years. Centenarians are the fastest-growing age group in the UK.

As well as those living to 100, or over, there are more than 570,000 people in the UK who are over 90.

The ageing population and pressure on state pensions places a greater emphasis on the need to start saving earlier to benefit from the effects of long-term returns.

At present, the average life expectancy for a person is 82 year. Recent research by easyMoney shows that the average earner will therefore need a retirement pot worth £228,000 to fund a “decent” retirement.

Our research also shows that people who live to 100 will need a pension pot worth £426,000. This sum will provide an annual income of £19,500. While this is relatively comfortable, it would hardly fund a luxurious lifestyle.

However, that calculation excludes the additional cost of healthcare and care home provision that may be necessary for many people in this age group.

According to consultants LaingBuisson, a care home place can cost an average of £30,000 per year for a residential care home, or £39,300 per year if nursing is required, more than wiping out what may have been seen as a healthy income from a pension pot.

How are savers going to build up retirement pots of such a size?

Auto-enrolment has gone a little way towards helping people save, however, it is not enough when people are choosing to contribute only the bare minimum of just 2% of their earnings.

Unfortunately, savers are going to have to take some more calculated risks. This is why we’ve launched easyMoney – to make money work even harder for investors seeking higher returns. Our products offer interest rates that can increase returns in exchange for a little extra risk.

Not only are investors going to have to increase their exposure to equities during the early stages of their life, but they also need to consider taking a more risk-hungry approach to exposure to fixed-income and savings products.

It’s generally accepted that cash Isa’s are only helpful for savers who are happy to see their savings slowly dwindle. What are the alternatives?

With bonds, investors have to be careful. Over the past two years, UK government bonds have been offering savers a negative real return (Source: Bank of England), with yields far below the inflation rate. Many blue-chip bonds offer little better.

Savers will have to start considering adding higher-yielding alternatives and integrating new products such as Innovative Finance Isas (Ifisas) within a diversified portfolio.

Without a more sensible attitude towards risk, more savers will find themselves coming up short in the retirement.

Andrew de Candole is chief executive officer of easyMoney.

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