One of the fundamental risks in retirement is unknown longevity; the risk of running out of assets before you run out of time. How long will your retirement resources need to generate income for you?
When determining longevity, we still base calculations on the population as a whole, but clear socioeconomic differences have been identified in mortality rates. A couple of weeks ago, I wrote about how life expectancy has been reducing in some parts of the country, but rising in London and the south. Until recently, it’s been thought that only higher income and wealth, and more education correlate with longer lifespans.
But now, academics have suggested that longer lifespans are, in fact, correlated with a specific personality trait that not everyone has. That personality trait is “long-term focus”; if you have this, you are more likely to seek out more education and practice better health habits. The very fact that you are reading this post about retirement income planning suggests you probably have that long-term focus and can expect to live longer than the average person. So, if you have read this far, congratulations!
Those with greater than average wealth, in good health, with a long-term focus, who live in the South are more likely to be in the half of the population which is expected to outlive the average. This group of people can probably afford to take less longevity risk than the population as a whole and might need to adjust their retirement spending accordingly.
One of your natural retirement personality traits is whether you are a “front loader” or “back loader”, as far as retirement spending is concerned. Front loaders tend to want to spend more in the early years of their retirement, accepting that they may have to cut back in later years, whilst “back loaders” will be more cautious in the early part of their retirement, keen to minimise the risk of running out of money in later life.
Regardless of which you are, if you have “long-term focus”, you may need to adjust your retirement spending plans to take account of the increased likelihood that you will have a longer than average life.
Philip Wise | firstname.lastname@example.org
Managing Director and Chartered Financial Planner