My morning’s reading that ends where I begin, with the good news that British readers are generally happy when they get to 65.
Jonathan Guthrie concludes an article based on 10 statistics with this data from Government research.
10) 7.6 (out of 10) — mean happiness score at 65 plus
My final number is, I hope, a positive one to end on. Data derived from public surveys on subjective topics such as wellbeing are at the fuzzier end of statistics. So there may be false precision in the finding that Britons are a few percentage points happier after the age of 65 than they are before it. Even so, that data suggests that the failure of most people to build up big pensions does not damage the wellbeing of the majority.
I’ve put that last suggestion in bold because I don’t get the impression that we live or die for a certain replacement ratio! Guthrie continues
the last chapters of a life are better spent in warm connection with others than cold calculation of one’s means.
and Guthrie reckons that we have other priorities than money
My conclusion is that we should plan for retirement in the round. Our thinking should include our partners, our heirs and that most peculiar unknown: the people we become after retirement. They will have emotional needs as profound as we have while still working.
I start at the end of Jonathan Guthrie’s article as it starts by suggesting the Pensions UK recently published research and what the Pension Commission tell us about our financial means. Infact it’s an article that tells a different story about how we get through our later years, despite the obstacles in what I grew up calling “financial planning” for retirement.
For the readers of the Financial Times, things are made clear with data. Steve Webb makes the argument
Sir Steve Webb… likens pension saving to an expedition across an unfamiliar landscape where the route is obscured by “thick fog and shifting sands”.
Guthrie gives us certain signposts from data
Numbers can help. Data is what humans use to structure their thinking when uncertainties abound. I have selected 10 key numbers to help readers frame and deepen their retirement planning.
A warning applies. Anyone planning their retirement should start by defining their aims broadly in words, not narrowly in numbers. Anchoring expectations to inflexible figures — a specified high income in retirement, for example — can distort behaviour and lead to disappointment.
A summary of what the nine numbers before the first!
1) 85 years — average longevity – we underestimate how long we’re likely to live
2) 3.8% — median withdrawal rate on a £250,000-plus pot size (recommended by the FCA)
3) 50% — your target replacement rate (TRR) – as recommended by the Government
4) Nearly a third — share of a single, well-off pensioner’s income made up by the state pension
5) 4 in 10 — divorce rate by 25th wedding anniversary
If the relationship ends in divorce, the woman will have median pension wealth (pot not income) of around £65,000 by her early fifties, compared with £150,000 for the man.
6) 8% — minimum contribution rate
The auto-enrolment legal duty requires employers to sign up all staff who do not opt out. The contribution split is 5 per cent from the worker and 3 per cent from the boss. Like most pension contributions, both are tax free.
The snag is that the minimum of 8 per cent gross qualifying earnings — which discounts the first £6,240 of salary — has become a default for many. It is the only funding for a third of auto-enrolled scheme members.
7) 2.8% — inflation (for April)
Personal investment can be enjoyable. But, in reality, it is a dogged struggle against the declining purchasing power of the pound in your pocket.
I suspect pension providers mostly quote nominal returns because using inflation-adjusted numbers, which are lower, make them and their clients feel depressed.
8) 2.4% — care home incidence
Much lower than most people estimate.
Census data shows that 3.2 per cent of women and 1.6 per cent of men over the age of 65 live in care homes at any one time. Most stays last less than two years. That makes debilitating care home costs a low financial risk in my book.
9) 60% — median residual wealth at age 90
According to official data, average total wealth — which often includes semi-vacant family homes — drops only around 40 per cent by age 90 from its peak in a person’s early sixties.
Statistics that make it easier to make financial sense of getting old
At 64 I have to accept new priorities, thinking about my health is part of thinking of my wealth. The state pension will be a significant part of my income as I wind down. “Inflation protection” is a key part of protecting my income, care homes a distant iceberg I might hit.
Thanks Jonathan Guthrie. Saving for a better replacement rate is no longer a priority but turning pots into pensions is. I wish I didn’t have to spend so much of my time thinking about my financial future and that a pension took care of things.
