Estimating Retirement Income Needs

This BBC podcast is supported by ads outside the UK The ultimate cookout starts with the ultimate ingredients. At Whole Foods Market, no antibiotics ever burgers and kebabs are prepped and ready to throw on the grill. Fire up a juicy ribbeye. Grab creamy potato salad and savory flatbreads from the prepared foods department, and round it all out with three hundred sixty five brand condiments, chips and dips at everyday low prices Whole Foods Market Make your summer sizzle. Every wireless service comes with a cost, right? Wrong. The Text Now app lets you do your thing for free. Get real talk, real text, and five G data for mustust have apps with no monthly bill. Need more data? add it right from the app. Done, Go back to free. No long term contracts, no pressure, no surprises, just wireless that works around you Text Now, we've got your b. Download teext Now in your app store today. Wireless plans require the purchase of a SIM card. visit textnow d. com for terms and conditions More of us are living longer than ever before. The number of people celebrating their hundredth birthday has doubled in the last twenty years. And if you reach state pension age, you have a better than one in four chance of making it to your nineties. Extra life, or at least extra healthy life gift But in today's Money Box Lve podcast, we're asking how you make sure it's an affordable one. My father always instilled in me to save for the future Of course you don't think at twenty that it has any bearing on you, but with a blink of an eye here I am drawing on my stout pension. We'll hear more from Jane soon. But today on MoneyBooks Live, we're asking how you can live long and prosper. What do you need to know and think about at each different decade to make sure your final stage is a grand finale and not a financial grind It's funny isn't?cause more of us than ever are thinking about how to achieve a long and healthy lifestyle, even if not everybody thinks about funding it. Eloise Sinner is a qualified fitness instructor working in London and with a real interest in exercise and longevity My training in previous years have been a little bit more performance based. so I have a background in dance and in ballet especially. and over the years, I think I've shifted away a little bit from the more aesthetic or performance style disciplines towards really taking care of my body, trying to avoid injuries and keep my health going for a long time. Do you ever think about, right, maybe I should get some investments, focus on my pension, make sure that when I want to stop, I've got the money there to stop and enjoy all the older age health that you're working so hard at building now Yeah, definitely. I mean I think for any freelance person, my pensions are a big concern because previously my first career was in corporate law And that just felt so structured and organized like I really knew that if you stay in thatarro for a long time, you kind of will have a plan set up for when you want to retire And now I'm kind of out here on my own thinking like, o what should I do in terms of like pension structure? I've actually just become employed with the company that I work for so I am back in the sort of employment world. Do you worry perhaps that without that, you'd end up so fit and healthy that you could live to a grand old age, but your finances just don't keep up? That could definitely happen. I mean I think in terms of priorities, I've maybe still put the priority on health Because that is like you know the ultimate thing that you need to be concerned about. But definitely like financial concerns are a close second into that. So I think yeah, making sure that you have a plan and also you know, if you don't want to be teaching in this certain kind of intense physical gym style type of environment, that you have other ways that you can still teach and earn money like maybe one to ones or you're running retreats or you're doing consultancy for like company or something like that, there are lots of different ways you can go Well listening to Eloise are today's two experts. I'm joined by doctor Suzie Morrisy, deputy director at Pensions Policy Institute, which is a charity providing independent analysis of pensions and retirement. and also doror Jonathan Crib, deputy director at the Institute for Fiscal Studies, who specializes in pensions and economic activity in old age. Hello, good to have you both with us Thanks great to be here. Hello Susie, let's start with you because you were actually appointed by the government to carry out an independent report as part of its third state pension review. Is that report now finished? Y's with the Secretary of State. Okay, what can you tell us I can tell you that it's with the HU state. Can you give us a sense of the scope or what kind of things you were looking into? Yeah, so absolutely so Having an independent report is part of the state pension age process. so the government ask appoint someone like me to do an independent report and they also get a report from the goovernment Auaries department. And the terms of reference for the independent piece varied from time to time, I was asked to look at the factors that the government should consider when setting the state pension age Okay, and do you know when we might be able to see when that report might be released? No, unfortunately I don't, but I'm sure we'll all look forward to reading it when it comes out. And in the meantime, we've got today's programme. So let's have a chat then about pensions and about planning. And Susie we'll stay with you Listening to Eloise, I was just thinking most people will never aspire to bench press as much as I'm sure she can. but plenty of people are thinking about how they can live longer, how they can stay healthy for longer. What are we seeing when it comes to life expectancy in the UK? Yeah, so as you say, I mean, we are definitely seeing life expectancy increases. They have been increasing for a number of years now and they are continuing to do so. Not at the rate not as fast. The rate of increase in lifepectancy is not as fast as it was, but nonetheless life expectancy is still increasing And as you say We can expect these long years. So if you get to st pension age, you can absolutely be thinking about an average life expectancy of eighty five years for a man and closer to eighty eight for a women. And then as you said, quarter into the nineties and one in ten even to one hundred Jonathan, at the moment, a lot of people who've already retired or are close to retiring have defined benefit pensions. So pensions based on their final salaries. For people like Llloise though, and for a lot of younger people, that's changing isn't it It's changing dramatically, the fraction of people who have that kind of Titional style pension has been dropping a lot. It's basically only confined to the public sector and to universities now, although lots of retired people will still have it from there previous private sector employers. What we've got is the rise of what people like me call defineed contontribution pensions That's basically a pot that you put money into, your employer puts some money into and it grows in over time as the kind of investments generate a return And then when people come to retirement, actually people at the moment have quite difficult decisions to make at exactly how they're going to convert that hopefully sizable pot of money into something like a pension. How they're going to use it through those years of retirement. Jonathan, when we talk about people being at the moment, a lot of retirees being on defined benefit pensions, it's easy to assume that that everybody who's currently retired is relatively well off. and there are of course plenty of people who are older who are struggling. Do we know how many retired people are in poverty U it's u your testing my knowge exact it's so picture, pensioner poverty exists. It's important for there are many pensioners who are experiencing it. It's going to be less than one in five somewhere between fifteen and twenty percent, I think It's lower though, than the poverty rates for families with children and working age families without children. significantly so. The pensers on average are kind of in a sense, financially protected by the state pension and the more generous pensioner benefit system that they have access to compared to people below state pension age Susie Eloise is only thirty four and a lot of people that age maybe aren't thinking about their pensions as much as she is. She's also theyre thinking about working into her seventies people's plans for retirement, how's their thinking changing Yeah, it's interesting. We might have ideas about how we think things are going to go, but it doesn't often go that way. I think a lot of people think they'll transition into retirement, but actually we still have a reasonable amount of cliff edge by which I mean people stop working straight away and go into a period of non work. But I think we can expect a bit more of that transitional pace. certainly people indicate they want to do when you survey them. So when you say transitional, you mean sort of going part time and then working a bit less Exactly. Yeah, that kind of thing. And we do see some people who stop paid work and then return. And some of that is the types of pressures that you just mentioned, those pensioners who aren't as well off and are experiencing poverty once they start leving off the state pension. But as Jonathan said, they are relatively few in number. So there are different patterns of how people start to move from paid work into ? Well, let's look at some of those patterns. As you say, there's no longer a set retirement age,s no longer that kind of cliff edge where everybody stops. But many people do stop working before their state pension kicks in. So by the time we get to our mid sixties, more than half of adults are no longer in paid work. That's according to the Office for National Statistics The numbers show that just over forty percent by then are still working. This money boox listener has been in touch to explain why she's very passionate still about employment My name's Jane D Francesco. I'm sixty six years old and I live in Sollyholl in the West Midlands. 've been a hairdresser for just over fifty years Absolutely love it. I love every aspect of my job. I have never ever got up in the morning, I never wanted to go. It's a very social job. So you grow up with people, you go through the highs and lows of their lives, you watch their children grow up, you end up cutting their children's hair and then you end up cutting their grandchildren's hair And so it goes on I've got an expensive hubby. I actually ride horses and they are my complete passion and have been ride since I was a little girl and they're very expensive. So enabling me to continue with my and I love to travel as well. And it just keeps the money just topped up. It's like the ic in on the cake If I suddenly had to stop through ill health or any other major decision, I'd have to rethink. But as it stands at the moment, my pensions and my earnings will give me the lifestyle that I want I was very lucky. my father, who was also in business in those days, was very, very keen for me to take out a private pension. So I took out a private pension when I was in my early twenties and have paid into that regularly ever since My father always instilled in me to save for the future and to be aware of pensions and how to save Of course you don't think it that it has any bearing on you, but with a blink of an eye, here I am drawing on my state attension. She still sounds surprised by that, doesn't she? Thank you so much, Jane. Suusie, reallyally interesting that Jane is active and working to help pay for a pretty pricey hobby, not necessarily because she needs to Yeah, It sounds like a fantastic retirement. to do it right. Yeah,'s something for me to aspire to, absolutely. I think it's really great that when people are still able to have work that suits them as they get older. And I think this is probably one of those types of challenge questions because obviously for some people in some roles, they're going to be less able to do the same type of work as they age. But that doesn't mean they couldn't do a different type of work of course. So it's great that she's still able to do that. you can have a sense, Susie, for how many people are working longer because they have to, not because they want to. I couldn't give you a clear stat off the top of my head, but we dont don't always need clear stats. Your general sense would be of interest. The number of people who return back into the workforce who've left and then go back in, that is usually primarily financially driven So so yeah, so we do see people doing that because they have to. And it is difficult to kind of understand what your expenditure profile is going to look like in retirement and getna and therefore understand what income in retirement you're going to need as well. So people people do need to adjust. It's one of those areas you need to continually think about over time As you do as when you're below state pension age as well, we all need to just check in on our finances and how we're doing, don't we And we'll talk about that thinking in just a moment. But I just wanted to Jonathan ask you, more people now have pensions because of auto enrollment. Can you just quickly explain how that works and if it's enough The key thing about automatic enrollment is that for most people who are employees, not every but most their employer will enroll them Automatically, without them doing anything into a pension scheme, they will deduct some of their earnings to go into that pension and they will put in some as well and you get some tax relief as well. And the minimum so what has that done? That has transformed the number of people saving into a pension scheme of those who are eligible. The fraction who save into a pension scheme has gone up from abve About fifty percent to about ninety percent But the minimum contributions are not that high. They'll be so okay for some, but for a lot of particularly middle income or maybe higher income people, the minimum amounts would need to be topped up if you're going going to reach a kind of target income that you might want in retire Thank you very much. Interested to hear how many people are doing that. Do get in touch moneybox at bbc dot coot ukot But as Susie says, our finances don't stop changing just because we retire. And in fact, the income that we need over that period can change as we age. Our reporter Joe Krasner has been asking retired shoppers in Liverpool whether they ever give their finances an MOT I retire I'm sixty five for the Royal Mail, so gave me a priate pension It sort of sees me by. it's okay. I'm managing, you know on that. So you retired over fifteen years ago. Have you done a financial MOT No, not really. No. we just carry on. We know we've got pension we're always going to have until the day we die so You just rely on that, really? I think a constant review our income all the time. My husband still works, he works for himself. so that can be a precarious situation. So we do look at that and we look at the future and where we're going to be, say even in ten years' time, what we're going to be able to afford and things like that. Do you feel you've got sufficient funds to last into your nineties? I haven't planned that far in advance. I don't plan that far. I planned actually Yes Weve own our own home. Weiously I've got my pension which I actually take took out of a company pension about eleven years ago and put into a private pension, which is done really well. So I think I've got sufficient funds in that to be able to live a decent the lifestyle that I want. I want to have a comfortable retirement to be able to travel do the things that I want to do go for lunch and hopefully, yeah, I think I should be able to do that I do have a financial advisor And so we look at that every year. And at the moment, he's not telling me to cut back on anything. It's working out all right for that last person there, isn't it? Suzy, on Saturday's Money Box program, they were talking about retirement in three stages. G go go slow and then no go. So the sort of the active stage, the slowing down stage and then the point at which perhaps you're quite a lot slowed down How does your spending potentially change over what really could be a thirty year period if you're lucky Yeah, absolutely. So traditionally we tend to think about retirement income just kind of decreasing over time, following that pattern that you talk about that it kind of goes down There is a little bump in the road for some people in the talk of a U shappe spending profile in retirement. if we do face some unexpected health costs and we need to pay for care, for example, So then we can see expenditure increasing as we reach our later years. But generally that kind of declining in expenditure as we do less and less as we feel less and less able to do over time is kind of the way that we generally think about our retirement. Jonathan, when should people think about having a spending MOT in retirement? I mean, we heard one person there checking in every year. Probably a lot of people aren't going to do that. Is there a good age to think about it Well, if if if you're really u, you know spending o all your money, buying new cars going on holidays, you probably do want a check in pretty quickly. More generally, I think that there's increasing interest amongst people who think about this kind of stuff for people to check in at least by the time you get to your mid seventies or late seventies Partly because while nobody knows when they're going to die and lots of people won't want to think about it The kind of uncertainty over your remaining life expectancy goes up and up and up as you get older And so the value, for those who don't have one of those traditional defined benefit pensions, the value of a little bit more certainty over your income is probably going to go up over time. And you might not want to kind of take your pension in quite the same way as you get older. So to get some of that certainty, you might be thinking about an annuity It used to be that everyone bought an annuity when they reached retirement. now they don't have to. Jonathan, can you just explain in very simple terms what an annuity is? What happens when you buy annuities is you give a lump of money to an insurance company and you say, in return for this money now Please pay me a certain amount per year until I die and the insurance company generally would say fine, you know, and there might be some you need to have work out exactly how you know what you get for your for your money and how much you're actually going to get. But that's basically how it works. and there are some tweaks you can be until your partner dies or something like that. But that's the basic idea. And there's nothing to stop you is there buying annuity partway through retirement if you decide you want that guaranteed income in the later years? It doesn't have to be at the start of your retirement years. Absolutely. You can start by you know making some withdrawals Uh doing what people call a drawdown. and then when you need that certainty, as long as you don't wait too long, you can say find an insurance company to buy an annuity with. The ultimate cookout starts with the ultimate ingredients. At Whole Foods Met, no antibiotics ever burgers and kebabs are prepped and ready to throw on the grill. Fire up a juicy ribeye. Grab creamy potato salad and savory flatbreads from the prepared foods department, and round it all out with three hundred sixty five brand condiments, chips and dips at everyday low prices Whole Foods Market, Make your summer sizzle. I cashed out my entire four hundred one K thinking someone stole my identity. A fake email cost me my dream home after I sent my personal information to a scammer. My AI agent wired thousands to an account I'd never seen When billions of people feel unsafe, that's no longer a security problem. It's an economic one. At Gen, we're building the trust layer for a more fearless planet with products and technologies from our global brands, Norton, Lifeelock, Avast, and Money Lion See it in action at genendigital. com getting health messages from people and longevity messages, as well as money messages. Mark in Somerset says my advice is to be a cyclist and stay healthy. Don't assume you're going to need a car to live a good life. The money they absorb over the years is colossal. rely on your own body for as much of your mobility as long as you can to stay healthy. Thank you very much indeed for that. Let's hear it from Sheikher Wara next. He got in touch to say he's still working and it started taking far more control of his investments. I'm seventy one years old. I worked in training and consultancy for thirty years and I sit and work with business owners And I love it Years ago I worked with one of the big insurers and they told me that my life expectancy when I retired was about two years. And that's been borne out by the number of friends and family over the years that reach retirement age retire and then within two years they either die or they have a serious illness. And I thought, well, I don't want to do that, but I still have a lot to give I get excited by it. I love working with people. Money does play an important part in that as well. I have a private pension that I started when I was thirty four, I think. It had a bit of a wobbly in two thousand nine. So it's not as big as I would have liked it to have been. Two years ago, I converted it into a sIip and now I manage my own investments because I believe that I've got a better chance of making my pension work for me Money and managing your money is really, really important if you want to continue with an interesting lifestyle It does sound interesting. Thank you, Saker. And a sip of course is a self invested personal pension. Suszie, it's brilliant, isn't it? that he's living long past the two years he was told to expect. But does that show it can be really tricky to use life expectancies to try and plan our individual finances It is really tricky, as Jonathan said, none of us know our date and thank goodness, in some ways that we don't. So it does mean that you're always going to have this level of uncertainty. And we tend to grasp at things that we think are markers, we tend to look at what happened to our parents But you know, as we've been saying, chances are we're going to be living longer. so we do have to keep this longer term time frame in mind and let it guide all of the decisions that we're making, including the fact that we need to force ourselves to engage and think about things and take those decisions. as Jonathan' saying, maybe midway through retirement engaging and taking that moment to assess, do we need to change tax? I've had a message from Sue in Kent, who says, I'm sixty four and I've already had both hips replaced. Now my left knee is painful and I've not been able to work for over eight years. Can't draw a state pension for two more years so on benefits, did have a tiny pension for my last job, but won't go anywhere to support me. I'm frustrated. my body is letting me down so early. Jonathan, this is a really good point isn't it? It's all very well planning to keep working like Shaker is, like Jane is. There are no guarantees that your health is going to let you. You can't kind of rely on being healthy enough to keep working No, and it's one of these risks of life. it's, you know There are lots of risks people face in this sense. you know, some people lose their jobs and struggle to get new ones. somebody some people have caring responsibilities they don't don't expect Some people and will have he health problems like this that limit the amount of work they do. There is a working age benefit system that will support lots of people. It's notable that it's a lot less generous than the system that supports pensioners and it's why it's really important for the government to think about, as Susie has been helping them do, about at what point they kind of transition from the support of working age to the support of pensioners Can I ask a very big question, Jonathan. And Susie, I'll come to you about this as well. donon't want to stay in paid work. If you do want to spend your retirement traveling or looking after the grandkids or volunteering or whatever it is How much money do you need And how long is that piece of strip? Okay Well, let me give you a couple of answers the The pension industry Group Pensions UK tries to develop some things that they call retirement living standards that they they have kind of different levels of aspiration. They're minimum moderate, I think there's one called Comfortable I These are not perfect And I think we should put a big a risk around them. But for a single person, they suggest an income of a minimum income of around fourteen thousand pounds a year. So not much above the full state pension. Yeah that includes the state pension. Yeah or a moderate of about thirty one thousand. I think it's fair to say if anything, those are actually little bit when you compare to actually how difficult some people are having in working age Another kind of so, you could try to aim for that, you could try to aim somewhere between there or if you earn a lot in your lifetime you know, well above that. On average a rule of thumb is that if you get to your fifties and you're looking ahead to retire and People on middle incomes might want a pension income, including the state pension of about two thirds of their current earnings because they don't need to earn quite as much as have quite as big a pension as they did in working life because they don't have a commute, they can shop around a bit more. they don't have to save for retirement anymore once they've actually got to retirement. But that's a bit of a rule of thumb. Okay, But it's useful to have these broad rules of thumbs because it's such a personal decision everybody has to make. Sie, we've had a message from Joanne, who says, I'm fifty four. I have a number of very small pension pots from different jobs. I've also been unable to get a mortgage as a single person, so I haveve lost money renting for the last ten years. I'm extremely worried at my retirement having zero equity. This is an important point, isn't it? Increasingly people will be going into retirement, needing to continue renting And so needing more money for that. Yeah, absolutely. And this is a new experience, right? This isn't the retirement experience of our parents or grandparents who either likely owned their own home or perhaps in social counsel hous this private renting in later life is quite new and absolutely does mean that people need a lot more money in retirement than what they have in the past. Jonathan was quoting those useful rules of thumb that the pensions industry put together, but they do exclude housing costs, those ones crucially. So if you know that you are going and this is a very difficult thing. I realize what I'm saying. It is very difficult, but if you do know that you're going to be facing those costs in later life, it probably does mean that you're going to need to try and save more and appreciate there So many pounds coming in, then a pound can only go to as far as a pound can go. But it really does mean that we are facing pressures to make sure that we are ready for retirement. Yes. Well, we're facing time pressures in this programme, but let's try and boil down all of today's advice into one final thought. Susie, how can people make sure that if they do live long, they can still prosper