Preparing for golden years that may last until you turn 100
February 4, 2021
While The Good Retirement Guide 2020 is intended chiefly for a U.K. audience, this very thorough look at life after work – edited by Jonquil Lowe – covers a lot of very useful ground.
The book begins by noting that “the age at which we consider ourselves to be old is steady moving upwards,” noting that 20 per cent of Europeans don’t feel old by age 80. We’re transitioning from a time when people retired at 65 and were retired for maybe 10 years, to an era where “one in three of today’s babies in the U.K. will live until they are 100.” Retirement, the book tells us, can now last for 25 years of more, a fact that requires some “radical rethinking” on retirement to ensure a positive experience.
Because fewer of us (as true here in Canada as in the U.K.) have workplace pensions, which are “fading fast,” more retirees are exposed to “the three great risks of retirement,” which are:
- Longevity risk – outliving your savings
- Inflation risk – the buying power of your money falling over time
- Investment risk – being exposed to the ups and downs of the stock market
In the U.K., the book tells us, recent research from Aviva finds that “over three quarters of pensioners are worried about the rising cost of living and having to continue working to make ends meet.”
The book says this type of worry can be addressed by a proper budget. If you lack accounting skills, consider a “spending diary” instead, which will achieve the same goal – “knowing how much you spend,” the books suggests. Such a diary can be set up with a notebook, a spreadsheet, or an app on your phone. Knowing what goes out – and looking for savings on the expense side – is a critical way to manage living on what’s coming in when you are retired, the book points out.
One thing many of us overlook when planning our retirement spending is the need to pay for care when we are older. “Increasingly, people are fit and well when they reach retirement and with luck that will continue for a long time,” the book advises. However, not all of us will make it all the way to the end without the need for long-term care, which can cost “more than 100,000 pounds,” which is more than $175,000 in Canadian dollars.
The book takes a look at pensions, noting that defined benefit plans, which are chiefly available to public sector workers, offer the promise of a “known proportion of your pay when you retire.” More common in Britain (and here) are defined contribution plans, where “the money paid in by you and your employer is invested and builds up a fund that buys you an income when you retire.”
DC plan members can choose an annuity, which “provides a secure income for the rest of your life,” or a “drawdown,” where the funds remain invested, and you withdraw a specified amount each year. The book recommends a drawdown rate of four per cent if you are going that route. The book offers a description of a variety of different annuities you may be able to buy, including joint-life annuities, where your surviving spouse can also receive a lifetime income.
If you are investing on your own for retirement, the book recommends a balanced approach, with some cash investments (short term, fixed income), some bonds (called “an IOU from the government or big companies), some real estate (either a rental property or exposure via real estate investment funds), and equities – stock in traded companies.
The book cites a rule of thumb often heard in pension circles – if you are investing on your own, your age should be the percentage of your portfolio that is in bonds. So if you’re 60, you should have 40 per cent in equities and 60 per cent in fixed income.
This approach is designed to manage risk (i.e., you reduce risk as you age), and the book says that’s important. “In general, there is no point taking so much risk that you have sleepless nights,” the author advises.
The book covers off many other topics – should you move to a smaller or newer home, or upgrade your existing home? There’s a detailed chapter on leisure activities that actually lists the various organizations in the U.K. that support your activity of choice, be it education, the arts, gardening, and much more.
As a senior, you may find you get a great rate – sometimes even free fares – on public transit, a great way to get around for less.
Importantly – especially given the whole “80 is the new 60” theme of the book, there’s a look at how you may be able to continue to work in your younger senior years, maybe part time at where you used to work full time. There’s detailed information on the value of doing volunteer work. There’s a long chapter on the importance of maintaining your health for the long retirement journey ahead of you. And there’s even a look at wills and inheritance, again from a U.K. perspective.
This is a very well-written, thorough look at a vast topic; congratulations to Jonquil Lowe on a job well and expertly done. As mentioned, while Canadian laws, tax rules, and estate practices are different, the core information in this book is as valuable here as it is to our cousins across the pond.
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Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.