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The Longevity and pension problem.

Some clever companies across the world are trialling 4 day week at the moment: https://www.4dayweek.com/

The idea is a reduction of 20% of working hours and how this is achieved can obviously vary between firms and also the viability of this would depend on what sector of the labour market you sit in (if you are in financial markets, this seems unlikely for you). You get paid the same, you get more downtime and studies have shown greater productivity. All sounds winning so far!


Having recently read The 100 Year Life by Lynda Gratton (which is a MUST read book for anybody under the age of 40 and if you have parents who question your life/work choices), there are incredibly sobering numbers for people who want to retire in the future.


It also made me think (the cynical part of my brain) that companies will do whatever they can as they need you to stay working for as long as you can. Less burnout is good for them, and you of course, and for someone who is a teenager now, you could be facing working until your mid-80’s for a decent standard of living in retirement, based on odds of 50% that you’ll have your 104th birthday.


I don’t know if this assumption is correct, but are young people alert to the possibilities of a longer work life and less retired life as I am not sure they are? And why would they be?


I did not think of any of this stuff at 18 years old. Now, almost 30 years later it is very much on my mind and having a 5 year old, makes me really concerned for her making good choices around education, the impact of AI and technology and the sort of jobs where that impact will not affect your ability to find ongoing work (anything to do with empathy gives you a good shot of not being obsolete in 20 years time apparently).


The old way of life was a 3 stage process the book argues. Education phase (up to 21), work phase (around 40 years or less) and then a retirement phase. Only 2 transitions were required and the world had final salary pensions back then and life expectancy was not like it is today. Much easier and simpler to plan for.


Nowadays, there would be several additional phases and transitions as the work phase and retirement phase has changed dramatically. Also, working for many companies, yourself and working past 60 is very much a feature of life these days. The authors contend that a constant reskilling and serious investment of personal time to stay relevant for employers will be required for the people being born today. Investment in oneself has never needed to be so high. Recreation they say will morph into re-creation, as we all are time-starved already. Our downtime will change as we look to create the time needed to constantly upskill or have a portfolio of work.


It is a highly complex subject and one I’ll write on several times over the coming weeks as I digest my own thoughts and feelings on this. For now though here are some numbers to look over for various stages of life.


I have assumed that a 25 year old has zero savings right now, a 45 year old has been super diligent and managed to save £150,000 and that a 65 year old has managed to tuck away £400,000.


Bear in mind the average pension pot in size is £61,897 according to the FCA, with the average contribution being 8% of salary.


Returns are assumed at 4% net, with inflation at 2.5%.


State pensions will reduce the monthly savings needed but the younger you are, the less you should rely on that.


I have not included, for obvious reasons, the cost of housing and children as these need to also be funded. An inheritance may help with funding some of the goals but your retirement funding is very much on your shoulders, I am sorry to tell you.

​Age now

Savings in place

Retirement age

Monthly savings needed for £36,000 gross

Number of years pot will last

25

zero

67

£3,380

40

45

£150,000

67

£2,148

35

65

£400,000

67

£14,806

25


That number for a 65 year old is scary and does reduce to £6,116 if you account for state pension being paid at age 67 but that's a punchy number still !


We all mostly crave for more time, to retire as early as we can but what this shows is that the gift of living longer, does come with a huge price tag. Thinking early on these types of planning issues is vital as starting late, known as the cost of delay, can be huge.


Want to talk it over ?


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