The Retirement Newsletter: How long can I expect to be retired?
Issue Number: 8 — Lifespan v. Healthspan
Welcome
Welcome to issue number 8—this week, how long can I expect to be retired? Yes, this is a slightly depressing question, but it is important as it impacts the ‘burn rate’ on pensions.
Pension savings ‘burn rate’
In retirement, we all need to consider our pension savings ‘burn rate’, which is how quickly we are using up our savings.
Ideally, we want to spend our savings at a rate that means we don’t run out of money or die leaving behind a stack of cash, which we could have spent doing all the fun things we wanted to do.
In essence, I am talking about long-term budgeting. But the questions are: How long term? And what else do I need to consider?
The way we calculate our ‘burn rate’ depends on many factors. These include our type of pension — do we have a regular income (annuity), or are we living off interest and savings? Is our income increasing in line with inflation? And our general health — how long do we expect to live.
If we have a regular income, the maths will be easier. We can view the regular income as day-to-day living expenses and the savings as emergency/fun money. That is, our savings are earmarked for emergencies (e.g., repairs to the house or car, medical bills) and fun, such as holidays, trips, and days out.
If we don’t have a regular income, then it gets tricky because we are most likely living off our savings and the interest they bring in, and that’s the tricky bit. If the interest on our savings doesn’t meet our living expenses, then we have to use some of the capital, and that means that next year, we will have less interest because the capital has decreased. Hence, we spend more of the capital in the next year. Each year, the interest gets less, and we spend more capital. But what is the correct rate at which to spend your capital?
No matter how you decide to split your savings between emergencies, living expenses (if you have no other income) and fun, there is one impact on both: how long you can expect to be retired — put another way, your expected lifespan.
Lifespan v. Healthspan
Lifespan and healthspan are two factors that must be considered when determining your pension savings ‘burn rate’.
Hopefully, at the start of your retirement, you are healthy. You can do things, and your health is not preventing you from doing what you want.
Lifespan, is well, as we know, how long you will be alive.
Unfortunately, lifespan and healthspan are not usually the same length. Hopefully, it is only late in retirement when your health starts to fail in a way that impacts your daily life and what you can do. And at that point, that is the end of your healthspan.
In the early days of retirement, you are (hopefully) healthy and fit, so you can get out, have fun, and spend your money. But this doesn’t mean you should just budget for your healthspan because you may need to pay for medical care or a care home towards the end of your life. You may need to keep something back.
The good news is that new medicines are closing the gap between healthspan and lifespan (see Crane, P.A., Wilkinson, G. & Teare, H. Healthspan versus lifespan: new medicines to close the gap. Nat Aging 2, 984–988 (2022). https://doi.org/10.1038/s43587-022-00318-5) and this makes things a little easier. You can almost view lifespan and healthspan as being equal.
So, what should you do? Well, there is no easy answer. There is no one-size-fits-all. None of us knows how long we will remain healthy or when we will die. But, I do know one thing, and this is well documented: during early retirement, most retirees tend to spend more money (once they have moved from saving to spending mode (more on that in a later issue)). The reason? They go out more and have fun because they have the time and energy. Later in retirement, as they slow down, spending decreases as people may not go out so often.
So, the answer? I don’t have one. I have a rough number for my life expectancy at my retirement date plus 25 years, based on local data.
According to the UK Life Expectancy Calculator, I have a life expectancy of 85 years (50% chance of reaching that age), with a one-in-four chance of hitting 92, 1 in 10 of 97, and 3.5% of getting to 100. Hence, I am thinking that I may get 25 years of retirement — if I am lucky.
My health expectancy figure is a little more tricky to pin down, and I cannot find a definitive source, but the suggested value seems to be around 63 years (see UK Public health profiles) but some researchers are suggesting 67 years. So, let’s be optimistic and say that I will get 50% of my retirement years in good health.
These numbers vary between countries and even between regions within a country. We also need to take into account our genetic makeup and lifestyle.
The bottom line is that this is some tricky maths, full of guesstimates.
Good luck!
This week in the Retirement Hustle
This week in The Retirement Hustle, I examine the diverse opportunities and possibilities associated with starting side hustles in retirement — from service-based to product creation and knowledge sharing.
I also introduce the idea of Active vs. Pseudo-Passive Income and attempt to debunk a myth about Passive Income. Do I succeed?
I finish by discussing “Knowledge-Based Side Hustles,” which allow us to leverage our expertise and experience accumulated over decades of work.
If you would like to learn more, please subscribe to The Retirement Hustle and gain access to the full video as a paid subscriber, or if you are a free subscriber, claim your free copy.
Travel — Nostalgia Corner
This week, the last few posts from my first trip to Hong Kong:
Hong Kong — Date Day Restaurant 日溢中西美食, Hong Kong— OK, not a story, but some tips for eating out in Hong Kong.
Hong Kong — Hong Kong International Airport 香港國際機場 (HKG) — Back on the road again, and what are they doing with all those tins of seafood?
Hong Kong — My top 5 haggling for Hong Kong — How to get a better deal in Hong Kong.
Hong Kong — Summary — A great visit — I will be back
Next week, Hanoi, Vietnam.
Reflections
I used to look at my diary in week view because the month view was too crowded — there was too much information, too many appointments, and too many meetings. Now I use month view, and it’s great — so empty.
Another retirement bonus.
Next week
Next week, I will examine a common misconception about retirement: that it is a long summer holiday.
Thanks
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Until next time,
Nick
PS: If you want to contribute a story, advice, or anything else to the newsletter, please get in touch.
Please note: I am not a financial advisor. When I write about money and financial matters, I base my opinions on what I have read over the years about money and retirement preparation. IT IS NOT FINANCIAL ADVICE.