A working life of 60 years?

Very few of us expect to spend 60 years of our lives in work.

As the Queen marks the 60th anniversary of her accession to the throne today, with a visit to King’s Lynn, it is worth thinking about the balance between time spent in work and retirement.

The traditional expectation for a man used to be working from age 18 to 65 (or 60 for a woman), resulting in a working life of between 42 and 47 years.

Those with a University education might have expected to work for three or four years less than this.

The length of time then spent in retirement would depend on life expectancy.

Back at the start of the 1990s, with the average life expectancy at birth at 73.4 years for men, it would have made sense to plan for a working life of 44 years and a further eight or nine years in retirement.

Working nearly five years for every year spent in retirement provided an adequate opportunity to save for expenditure in later life. The State also found it relatively easy to provide when retirements were, on average, lasting for less than a decade.

So, what has changed?

Life expectancy continues to increase. Boys born in the period 2007 to 2009 now have a life expectancy at birth of 77.85 years. Women have seen similar gains, with their average life expectancy increasing from 78.9 (for births between 1991 and 1993) to 82 years ( for births between 2007 and 2009).

A longer life in retirement means fewer working years available to save for later life.

Living for longer can result in greater expenditure on personal care, with better life expectancy not always leading to better health in older age. Retirement can be very expensive as a result.

There is also a growing tendency to retire earlier, or at least ‘phase’ a retirement, with a period of part-time work often proceeding a full retirement.

Shifting the balance between time spent in work and retirement can have a big impact on Financial Planning.

It results in needing to save more to fund an income in retirement, and having to save more in less time.

When combined with a growing tendency to delay making important life decisions, such as buying a home or getting married, this can make retirement planning very difficult it not impossible for many people.

Making assumptions about life expectancy remains an important part of retirement planning, as without having an important number to aim for, other decisions become difficult to make.

Photo credit: Flickr/Jean-Pierre-Montauban