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  • Writer's pictureNoel Watson

Living too long - how bad is it for your retirement plan?

Updated: Jun 12


suggested that increasing life expectancy has made wealth managers think more about longevity risk - effectively, the risk of living longer than expected and running out of money. The article states that longevity has increased by 4 years (from 77 to 81) over the last three decades.

In this article, we examine how much of a risk this increased longevity is in terms of retirement income sustainability.

Ian and Janet

To help us investigate, we will use example clients Ian and Janet. Ian, 62, and Janet, 58, are both in good health and considering retiring next year. Together, they have a retirement portfolio of £1,000,000 and wonder:

  1. How much they can spend in retirement

  2. How much will changing lifespans affect this?

We will make the following assumptions:

  • Both Ian and Janet will receive a full state pension.

  • Taxation and taxation optimisations are ignored.

  • They do not plan to gift to their children or leave a legacy.

  • They are not expecting any inheritances.

  • They do not want to plan for potential care home fees.

  • They are not planning to downsize.

  • Expenditure will increase by 1% less than inflation each year.

  • They are not planning on purchasing a secure income (e.g., annuity) at any stage.

  • Fees are 1.1% per annum, which covers advice, fund and platform fees, and is typically what a client with this amount invested would pay with Pyrford Financial Planning.

  • Their portfolio consists of 70% equities and 30% bonds, broken down as follows:

    • 42% developed market equities (large and mid-cap).

    • 14% developed small-cap value equities

    • 14% emerging markets

    • 30% bonds

30-year baseline

Our baseline will have Ian and Janet living for 30 years after retirement. We will assume spending starts at £75,000 per annum.

At a high level, we would consider this plan sustainable, succeeding in 84% of historical scenarios.

Digging a little deeper, we can observe the following.

The starting safe withdrawal rate is almost 6%. This has been boosted by:

  • The reduction in (real) income as Ian and Janet get older (1% less than inflation each year).

  • The two full state pensions.

  • The use of a diversified portfolio.

As you might expect, given our starting withdrawal (7.5%) is higher than the safe withdrawal rate (<6%), not all historical scenarios are successful, with the worst case having the money running out after around 13 years, not even halfway into the plan.

It's not all doom and gloom; the median term has the balance slowing growing in real terms over the thirty years, but it shows that front-loading spending by:

  • Taking 1% less than inflation from the retirement pot each year

  • Taking a lot less from the retirement pot once the state pensions commence

doesn't come without risk.

We can demonstrate this by removing the state pensions and setting spending to increase with inflation each year (rather than 1% less than inflation). We reduced initial spending from £75,000 to £51,500 to give the same 84% success rate, which improves the worst-case success rate by around three years.

For the purposes of this blog, we will assume Ian and Janet are happy with the £75,000 starting amount and now want to look at how this might be impacted if we extend longevity.

A 40-year retirement

We are fortunate that Timeline makes these types of scenario evaluations simple.

As might be expected, the plan now only works 75% of the time compared to 84% of the baseline scenario.

While the safe withdrawal rate has reduced from 5.86% to 5.7%

This reduction in the safe withdrawal rate is much less than might be expected (unless you read part 2 (challenge six) of our 4% rule series!). As mentioned above, the retirement portfolio is placed under much less stress the further Ian and Janet get into retirement.

Janet would only have to reduce their initial spending rate by around £3,000 to £72,000 to accommodate this extra decade of retirement with the same starting success rate as our baseline.

Real-world longevity

So far, we've examined two fixed longevities: 30 and 40 years. When it comes to real-world retirement planning, we care about the chances of outlasting the money. The worst case from a sustainability point of view is:

  • Ian and Janet living a long time

  • The portfolio having a poor outcome/inflation being high.

As can be seen from the below, the chances of Ian or Janet being alive as Janet approaches her 100th birthday is much less than a decade earlier.


This article set out to:

"examine how much of a risk this increased longevity is in terms of retirement income sustainability."

Based on our example clients at the outset of retirement, the answer is very little.

This analysis comes with many simplifications/challenges that real-world retirees need to address.

  • The impact of longevity on the plan would need to be periodically reviewed. As Ian and Janet approach 80, for example, this could lead to different outcomes.

  • A plan would need to be in place to adjust expenditures should a poor series of returns be encountered early in retirement. The worst-case scenario in our examples above had the portfolio being exhausted when Ian and Janet were in their 70s, which would be considered by many to be unacceptable. It would be a significant drop in their living standards to survive off just the state pension.

Both these points emphasise the need for ongoing retirement planning and having robust processes in place.

Want to find out more?

Please contact us if you want to build a retirement plan that helps remove anxiety and allows you to get on and enjoy your retirement.

About us

The team at Pyrford Financial Planning are highly qualified Independent Financial Advisers based in Weybridge, Surrey. We specialise in retirement planning and provide financial advice on pensions, investments, and inheritance tax.

Our office telephone number is 01932 645150.

Our office address is No 5, The Heights, Weybridge KT13 0NY.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Although best efforts are made to ensure all information is accurate, you should not rely on this blog for your personal situation or planning.

The value of your investment 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.

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