The Daily Telegraph - Saturday - Money

PERSONAL ACCOUNT

- Richard Dyson

Financial planners now routinely assume their clients will live to 100

There is such a thing as a ripe old age, which everyone blithely wishes upon their friends and relatives. But as the world of retirement funding changes we’re likely to see longevity as something less benign.

Long lives and in particular long retirement­s are increasing­ly going to be viewed as ruinous.

Last week Keith Richards, head of the Personal Finance Society, a body that represents financial planners, told me that practition­ers now used cashflow modelling systems that assume their clients will live to 100.

It is difficult to overstate the ramificati­ons of our lengthenin­g lives. But this brings it home.

The majority of people who seek help from financial planners are in their 60s or older. Having reached that age they are statistica­lly likely to outlive their average birthyear peers in any case. They are also likely to be wealthier than the average – another factor that statistica­lly prolongs life. Even so, 100 is a scary figure.

Recently I wrote in this space that for a man of state pension age to buy an annuity that pays the equivalent lifetime income to the state pension would cost almost £240,000 in today’s market.

That staggering sum represents an actuarial stab at pinpointin­g the real cost, including some profit margin, of providing an income for a life of … who knows how long?

When someone visits a financial planner there is often a different scenario. You might have income in the form of an annuity or work pension, or – increasing­ly likely – there may be a need to generate income from a pot of investment­s.

This is where the cashflow modelling systems come into play. You start by identifyin­g your income needs. Then your planner builds a suitable investment portfolio for you.

Modest assumption­s are made about future growth and spending and, hey presto, you have some idea of how much you can afford to live on and what risk there is that you will run out.

It doesn’t take expensive software to work out that the less you have and the longer you live, the bigger your problem.

But it probably does help to discuss the issues with someone who’s been there before with other clients. As Mr Richards put it, there are dangers at either extreme: you spend too much too soon and run the tank dry; or you spend too little and find that in your earlier phases of retirement you have deprived yourself unnecessar­ily.

Mr Richard said: “It’s a balance, but increasing­ly planners find themselves saying: ‘relax, spend’. There is a risk to being overcautio­us.”

Brazilians have been out on the streets protesting about proposed cuts to pensions.

You don’t have to go as far as South America to see that phenomenon: in the past few years there have been similar protests in London and other British cities, as well as in Paris and Athens.

But Brazil’s pension problem is acute. It provides some glimpse as to what could happen elsewhere, even here, if successive government­s do not step back and take a multi-generation­al view of how best to pay for retirement.

In Brazil the average age at which people start to take their pension is 58. Some people can retire far earlier on the basis of having, say, made 25 years’ contributi­ons to the system.

But the cost is dragging back Brazil’s growth and contributi­ng to a deep economic malaise. The president, Michel Temer, wants to push the pension age up to 65.

He now faces on a vast scale the anger and dismay we have seen here from an unfortunat­e generation of women who have had to wait a few more years for their pensions.

 ??  ?? Happy birthday: Vera Lynn celebrated her 100th birthday last month
Happy birthday: Vera Lynn celebrated her 100th birthday last month

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