Life is short – but not for long

When we talk to people about their financial futures, it always revolves around a plan that fuels the life they want to live. Finances are the tool we use to generate the income you need to live that life. But how we manage that tool depends on a number of ongoing conversations:

• What income will be needed to fulfil your life’s goals?

• When will you need these funds?

• How much wealth do you need to create, to reach those goals?

In our experience, people often underestimate how long they will live, and what they’ll need to make that life comfortable.

“Average” life expectancy in particular can lead to underestimation. For a 65-year-old male it’s currently 83 and for a female it’s 85[1], but planning using these these assumptions can be dangerous. To gain a better understanding of how this shapes our views on financial planning and portfolio management, let's delve deeper.

The flaw with “average” life expectancy

Recognising that the average life expectancy age is a generalisation for the entire population is crucial. This doesn’t take into account the life expectancy of different ethnicities or lifestyles. It's evident that you are unique and not part of that overall average.

Consider this: you probably earn an above-average income, have a less physically strenuous job, prioritise self-care, receive superior medical care, and have achieved higher educational qualifications. It's reasonable to expect that these advantages will likely result in a longer lifespan than the average.

In sickness and in wealth

Many of our clients are married, which implies that a financial plan that can sustain them both throughout their lives is required.

Surprisingly, despite individual life expectancy figures, a couple retiring at age 65 has a joint life expectancy of not 83 or 85, but 92 years. This indicates that, on average, there is a 50% chance that one spouse will still be alive and requiring income at age 92.

Keep in mind that this figure is based on an "average couple," so your actual joint life expectancy is likely to be even older than 92.

Medical innovations are keeping us alive longer – but at a cost

Medical technology is rapidly advancing, offering solutions to previously fatal conditions or enabling longer survival with certain illnesses.

Artificial intelligence is enhancing diagnostic accuracy, while remote patient monitoring through the “Internet of Things" is becoming feasible.

Development of artificial organs is reducing the reliance on organ transplants, hinting at only a fraction of the potential progress we may see in the years ahead.

These innovations could potentially extend average life expectancy by over thirty years beyond the age of 65, shaping our current planning strategies. The scale at which medicine is innovating means we simply cannot predict how we will respond to diagnoses in the future. Part of a holistic financial plan includes insurances and protection, which are going to help you more if you get the right insurance plans in place now.

By emphasising that we’re planning over the long-term for extended lifespans, we can maintain focus and perspective during shorter-term challenges. Having the conversation around how long you should plan to live, the lifestyle you want when you reach old age and what you can do now, to protect yourself from significant financial burdens in the future, are all part of a holistic financial plan.

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The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

[1] OECD: Health at a Glance 2023, accessed 25th June 2024