Financial consequences of increased life expectancyPosted on: 13 November 2014 by Steve Wanless
Steve Wanless on the challenges of managing your money over a lengthy retirement
Are we in danger of wishing our lives away? Apparently, those who lived through – and survived – the sixties are the envy of today’s younger generation.
From the Beatles and JFK via England’s 1966 World Cup victory to Butch Cassidy and the Sundance Kid and Neil Armstrong landing on the moon, that was the decade to be around.
Whether it was stepping easily onto the property ladder or into a job, free love or gold-plated final-salary pensions, that era had it all. They do say if you can remember the sixties, then you weren’t part of it.
All that excess should have come at a price. Jimi Hendrix, Brian Jones, JFK and John Lennon may have all died before their time, but, according to the Office of National Statistics (ONS), the majority of the baby boomers are going to live to a grand old age.
When Queen Elizabeth succeeded to the throne in 1952, she sent around 200 congratulatory telegrams to those who had reached their 100th birthday. Now she sends ten times that number, the telegram has been replaced by a card and the Department of Work and Pensions has had to take on extra staff to cope!
While there has been talk of raising the age-bar to 105, even 110, there is no suggestion that this card will fall victim to social networking and new technology and be replaced by a “royal” text.
A recent survey of 2000 people (aged 18-60), which left a third of those polled wishing they’d rather been enjoying the sixties than today, showed that the passing of time can cloud and possibly distort the reality of the times.
Two thirds of those polled said there was a “greater optimism” in the 1960s than today. Don’t forget the Sixties was the period of the “Cold War” between the USA and Russia; the Cuban missile crisis of 1963 brought the super powers and the world as close to a nuclear war than ever before – or since.
John Kennedy – and his brother Bobby and Martin Luther King were all assassinated. America was embroiled in a war it could not win abroad, Vietnam, and conflict at home with the civil rights’ movement.
Such myths of lifestyle remain today; what is not in doubt is that greater life expectancy creates new and different problems.
There’s a very obvious consequence of men living longer (a record number are surviving into their 90s) - women are spending less time as widows! In 1991, the ratio of this 90s club was 436 women to 100 men; now it is 256-100!
It is an interesting fact to pass on to friends, but also a key statistic that could impact on your future when discussing financial decisions with an Independent Financial Adviser (IFA). Great life expectancy has seen falling annuity rates, but should it also impact on a widow’s pension.
The best mortgage rate and deal is important, of course, but it is only one part of the financial equation when your IFA helps plots the best way to utilise resources for future planning and protection.
The headline-grabbing rate of less than 1% for a mortgage put HSBC in the spotlight recently, as many analysts now predict the long-awaited rate rise will not appear until some time next year.
For those enviously looking back in time, they might take note of the 15%-plus mortgage rates that peaked in the early 1990s. Many had their homes repossessed, but eventually picked themselves up and climbed back onto the property ladder.
The ONS has also produced a report that scuppers the popular idea that we all hanker after retirement on the coast or in a quiet country town.
The figures were revealed in the 2011 national census figures. Only 3.6% of the over 65s had changed their address in the previous year and 57% of those have stayed within the same local authority.
Even those who downsize and have the opportunity to change prefer to stay near friends and in neighbourhoods they know.
The dream of a move abroad also seems to be fading. The favoured destinations of France and Spain have had their problems since the 2008 financial collapse and there are predictions the euro zone may return to recession. In the survey, 5.8% of those who moved had come back from abroad.
While the older generation are happy to stay put, it is also clear they are increasingly using their homes to fund a more extravagant lifestyle. The Equity Release Council announced that £375.5 million was released in the third quarter of 2014.
This was the highest quarterly total since records began in 2002, and the 2014 figure is already 95% of the entire 2013 amount.
There were more than 5,500 aged over 55 who released funds between July and September – and not all in the pursuit of personal pleasure. Many are helping children and grandchildren, often to get on the property ladder.
Even those decisions need specialist financial advice. Equity release has its critics; it can be costly and can seriously affect what is eventually left to the next generation, although that might not be a priority if you are giving money away now.
The Money Advice Service (MAS) advises: “Equity Release can be expensive and inflexible if your circumstances change. It may also affect your entitlement to state or local authority benefits.”
We have just started a four-year centenary remembrance of the First World War (1914-1918). The stuttering, black-and-white hazy images are from a different age – yet there are 104,000 UK citizens born during the Great War who are still alive.
They have been through “boom and bust” several times; good days and bad. We are all in the same boat. Some focus on the positives; others will always prefer seeing the glass half empty.
As cricketer Ian Botham, among others, frequently declares: “Life is not a dress rehearsal.” Something he has demonstrated on more than one occasion. Whatever the times, we have to make the best of them.
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