For many people making retirement plans, the main question they ask themselves is: Do I have enough money?

However, while this is undoubtedly an important question, it only considers wealth, which is just one component of a retirement plan.

How long your wealth will need to last and what you will be spending it on are equally important factors in building a retirement plan. So, in addition to your wealth span, understanding your health span and life expectancy is also key.

Indeed, building a plan around these timelines can help ensure you enjoy a retirement free from financial stress and with greater peace of mind.

Read on to find out how understanding your health span, wealth span, and life expectancy can help you build a retirement plan.

As average life expectancy rises, your retirement may last longer than you think

People are living longer than ever before, and it has transformed retirement in just a few decades.

When the State Pension was first introduced in 1948, the age at which you could receive it was 65 for men and 60 for women, despite women living longer than men on average. This stayed the same until 2010, when it was equalised for men and women, and it has now increased to 67 for both.

Figures from the Office for National Statistics (ONS) show just how much life expectancy has increased over that time. In 1951, the average life expectancy was around 69. By 2011, it was around 81, more than a decade higher.

And it’s only set to rise further. Of course, the future can’t be known, but assuming we continue the same trajectory, a baby born in the UK today can expect to live to 89, according to the ONS life expectancy calculator.

However, life expectancy isn’t fixed. The older you become, the longer you’re expected to live, because you’ve already passed many of the risks that affect the average.

For example, the average 70-year-old today is expected to live to around 87. And of course, many people will live well beyond this. For instance, almost half of 70-year-old women are expected to reach 90, and around 5% will celebrate their 100th birthday.

So, retirement used to last just a few years, but now it can span two, three, or even four decades, meaning your savings may need to support you for much longer than previous generations.

This comes with significant financial implications, as the longer you live, the more retirement income you will need to fund your life.

There is, of course, no way of knowing how long you will live. But planning for a retirement that lasts longer than you expect can help reduce the risk of running out of money later in life.

This may mean staying in work an extra year or two, adapting your budget to accommodate more years, or building an investment plan designed to continue generating wealth over the long term.

A longer life can influence your health span

Your health span refers to the years you spend in good health, and it can matter just as much as life expectancy for your retirement planning.

While you may well live into your 90s or beyond, some of those years might involve reduced mobility, illness, or the need for care, all of which can impact your finances. You may also face poor health at a relatively young age and be forced to retire earlier than you planned.

As such, your health span can influence your ability to earn income, as well as potentially increase your expenses through medical treatment, home adaptations, or care costs.

You can’t predict what your needs may be in later life, but you can build a retirement plan that accommodates potential ill health.

That may mean buying an annuity or investing in protection. It could also mean making a plan to pass on your wealth to your family now, so it isn’t used to pay for your future care. All of which can affect your retirement fund, so it’s important to ensure you have factored your health span into your plan.

Cashflow modelling can show you how your health span and life expectancy affect your wealth span

Your wealth span is how long your money can support the lifestyle you want.

As well as being affected by your income and spending, your wealth span is also shaped by factors beyond your control, including:

• Inflation
• Market movements
• Changes in tax legislation

Even small changes in these areas can make a significant difference over a retirement that may last several decades, which is why cashflow modelling can be invaluable for helping you build a retirement plan.

Cashflow modelling accounts for your personal financial situation as well as external factors. It then projects how your finances could fare in different scenarios, such as retiring at 60, needing care in later life, or living to 100. While no model can predict the future, it can show you how resilient your plan is under a range of circumstances.

In short, cashflow modelling can help you visualise how your finances map onto your health and lifespan to give you a wealth span.

Rather than trying to predict exactly what will happen, the aim is to build a financial plan that can adapt as your circumstances change. This can help give you peace of mind that your retirement plan is watertight and will ensure your security.

Conversely, if the modelling finds gaps, you can take action to help fill them. This might include:

• Increasing your pension contributions
• Adjusting your investment strategy
• Making full use of your tax-efficient opportunities
• Exploring guaranteed income options such as an annuity.

The goal is to create a retirement plan that gives you the confidence that you have prepared for a range of possible futures – and this is where we can help.

To speak to a financial planner, get in touch.

Email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.