Sunday 27 November 2011

Plan for a Longer Retirement

The ultimate goal for a DIY Income Investor is a comfortable retirement, with your income from savings and investments supplementing any pensions you may have built up.

Well here is an incredible statistic: over the last 4 years in the UK life expectancy has increased by one year. Something similar must be happening in all developed countries.

And this looks like a continuing trend, with the implication that your retirement could be longer than you think.

These figures come from the Office of National Statistics, reported in This is Money. On average, life expectancy at birth has gone up - from 77 years to 78.2 for men and from 81.3 years to 82.3 years for women. Men aged 65 could in 2010 expect to live 18 years compared to 17 years in 2006. What this seems like (although this isn't quite true) is that just by surviving the last 4 years, you have gained an extra year of life.

There are geographical variations, of course, with - broadly speaking - people in the south of Britain living significantly longer than those in the north, the English living 2-3 years longer than the Scots.
But the key issue is: how to survive comfortably in this longer retirement?

The main sources of income in retirement are likely to be:
  • pension(s) from employment
  • State (government) pension
  • income from savings/investments
  • (possibly) income from part-time work

It seems to me that the main steps to take follow the basic principles of the DIY Income Investor approach:
  • keep reducing your living costs while working, so that your costs when you reach retirement are minimal (consistent with a comfortably lifestyle)
  • make maximum contributions to any workplace pension scheme that provides matching funding
  • (if applicable) make further pension contributions up of any remaining income attracting higher-rate income tax
  • ensure you have paid sufficient contributions (i.e. National Insurance in the UK)  to qualify for a full government pension
  • if you want to continue to work part-time in retirement, keep your business contacts live (e.g. using LinkedIn)
  • finally - build up your income-producing portfolio (which should be largely tax-free by the time you retire)

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

1 comment:

  1. Retirement does not mean that you'll completely forget working or doing something out of your life. Aside from investing on stocks, I invested on retirement communities Long Island homes.