Much has changed in the 30 years I have been in financial services. One of the major recent changes has been the pension freedoms, which came into force three years ago.
In the ‘old days’, clients’ main choices were around what type of annuity they were going to buy at retirement with their money purchase arrangements and what to do with their tax-free cash.
These days, the primary concern is whether they will run out of life before they run out of money.
One of the driving issues is, of course, mortality and the medical improvements that have been seen over recent decades, which mean client conversations have also needed to be adapted.
My experience since pension freedoms is that, in almost every single case, clients underestimate how long they may live. I am not entirely sure if my clients are particularly pessimistic or if this is a general trend, mind. I suspect people simply do not want to think about it.
At our client meetings, we always start by asking about family history and what age the parents of our clients died. We have found the online calculator provided by the Office for National Statistics really helps develop these conversations.
For example, for a male aged 66, the ONS calculator predicts an average life expectancy of 86, so 20 more years. However, something the tool also highlights, which clients often forget, is that there is a one in four chance of reaching 93 and a one in 10 chance of reaching 97.
This can have enormous consequences on planning and, indeed, we find it helps us to set more reliable expectations for our cashflow work.
The ONS has also published interesting statistics about how life expectancy at age 70 has improved too. Based on mortality patterns in 2016, men aged 70 can expect to live for a further 15.3 years, up from 11 years in 1990. For women, this is 17.3 years, up from 14.3 years in 1990.
This may also help explain why more people are now continuing to work into their 70s, along with legislation that came into force in 2011 preventing employers from compulsorily retiring workers once they reach 65.
Regardless of the reasons for increased employment, the good news is that people in their 70s are more financially secure than in the past. In the British Household Panel Survey of 1991, just 52 per cent reported their financial situation as either “doing alright” or “living comfortably”. By 2016, this had increased to 82 per cent.
But while this suggests older people are healthier and more able to continue working into later life, it is not always because of a desire to do so and stay active. Indeed, for many, it comes down to a need to work as a result of insufficient retirement income.
In the words of financial guru Nick Murray, “when your money outlasts your life, in retirement you can maintain your dignity and independence”.
Without a financial plan, clients will most likely not achieve this. The need for sound financial planning, including full cashflow planning, is more important than ever.
Tracey Evans is joint business owner and principal financial planner at Juno Wealth. She will be speaking at the flagship Money Marketing Interactive conference on 3 May – secure your free place now at http://mmi.moneymarketing.co.uk/