6 ways to fix your finances for the 100-year life

Fidelity Personal Investing can boast that it has 367 customers above the age of 100.

The number has fluctuated slightly - it was 356 last year but 372 the year before - but it has grown significantly over the longer term. Back in 2016 there were just 86 centenarian investors on the Fidelity books.

This rise mirrors the broader trend for longer living and growing numbers of very old people. New data from the Office for National Statistics came out this week that confirmed there were 15,330 people aged 100 and older in England and Wales in 2024, up from 14,800 in 2023. Meanwhile, the number aged 90-and-over grew to 563,610 in 2024, up from 537,030 the year before.

Most remarkably of all, there were 570 people in England and Wales aged 105 and over in 2024.

Such longevity is to be celebrated - but it does create challenges, for both individuals and policymakers. Longer lives increase the cost of providing the State Pension, as well as the NHS which is used more by older people.

And it creates significant challenges for our personal finances too. Those extra years of life need to be paid for. Here’s six ways to prepare your finances for the 100-year life.

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1. Plan for 30-plus years of income

A lot of effort has gone into working out how much income retirees can safely take from their pensions savings. The problem is there are several factors determining how much you can take that you can’t know in advance.

If you are funding retirement with the help of a pot of invested money the returns generated will fluctuate and are uncertain. Then there’s inflation and the cost of living, which is bound to change. Finally, of course, you don’t know how long you have to live.

That’s why - up to now - retirement plans have typically been drawn up on the basis of your retirement savings having to last 30 years. So, until age 95 for someone retiring at 65. This is the basis of the 4% rule-of-thumb which states you can safely take 4% of your fund at the start of retirement, and then uprate with inflation, in order for your money to last 30 years.

That’s sensible when you consider that, according to Office for National Statistics data, the average life expectancy for a female aged 65 is 88. It’s 85 for a male.

But consider this - the same data shows a female aged 65 now would have a one-in-four chance of reaching 94, and a one-in-ten chance of reaching 98. The figures for males are a one-in-four chance of reaching 92 and one-in-ten of reaching 96.

People living to these higher ages will be the minority. Nonetheless, a significant proportion of people will hit these landmarks.  Your chances improve if you are in good health at younger ages, if you’ve lived in certain areas of the country like the South West, South East and London, and even if you are married. If you tick these boxes you should probably plan for living much later.

That’s why it can make sense to plan for 35 years or even longer when drawing up your retirement plans. Fidelity’s own retirement advisers build plans based on income lasting until age 100 as a starting point. That doesn’t have to mean you have to plan on taking income at age 95 equivalent to the income you take at 65, but you may want to know that essential spending is covered by income that is reasonably secure by the time you reach those ages.

2. Reducing your income to match your changing lifestyle

The shape of your spending is likely to change a lot as you move through retirement, and especially if your retirement lasts for 30 or more years. Retirees will often express a desire to spend more money in the early years of retirement when they still have the energy and - with luck - the health to make the most of their freedom from work.

Then there may be a period when activity and spending slow down. Expenses like foreign travel might naturally fall away as people move into old age and they can plan on spending a bit less day-to-day.

Finally, spending can shrink to the essentials and a few luxuries here and there in the final years of retirement and very old age.

By planning these reductions in spending in advance, it may be possible to better maximise pension income and thereby to fund a longer retirement. For example, plan for a reduction in spending after 10 years of retirement of 10%-20%, and then another after 20 years, thinking in advance about the lifestyle changes you could make to help you afford those reductions.

A professional adviser is especially helpful here. They will be able to model how your spending might change and forecast the level of reduction in spending that will be required in order to stretch your savings to last as long as you need them to, while also giving you the retirement you expect in the early years after work has stopped.

3. Keep your income tactical to beat market falls

Even if you have set an income plan you are happy with - and that can last for 30-plus years - there is  still a risk, if you are using investments to fund retirement, that markets fall and put your income under threat. This risk is most acute in the early years of retirement when you still have lots of your pot exposed to the ups and down of markets.

If markets fall and you need income, the danger is that you sell assets when their price is low, meaning you have to sell more of them to get the income you need. It means there are then fewer assets invested to benefit from any recovery in markets.

There are ways to reduce this risk. By having a pot of cash available and taking your income from it in the first instance, you can allow investments to fluctuate for a period without the need to sell them to generate income. You will have to sell assets eventually, of course, but the cash pot gives you more flexibility over when you sell.

Financial advisers often recommend keeping two or even three years of income on hand in cash for this purpose. For example, you keep two years’ worth of income in cash and take your income from this money. Markets fall in the first year so instead of replenishing the cash pot by selling investments you allow them to recover and continue taking income from the cash pot. With luck, by the end of the second year your investments will have recovered, and you will be able to replenish your cash reserve.

Another tactic to deploy when markets fall is to limit your income, if you can, to just what is produced by investments naturally through dividends and bond interest. This means you don’t have to sell the assets themselves and lock in losses.

4. Care costs - have a plan

A great uncertainty facing your financial plan in retirement is the possible need to fund residential care. We know that a significant number of people will require care in old age, but it is still likely to be a minority overall - that makes it difficult to plan for.

Moreover, the great cost of care means that it is not realistic for most people to simply keep an amount of money on hand big enough to pay for care if it's required. Between 2022 and 2024, average fees leapt 20% to £949 per week - or around £50,000 per year - for a bed in a care home, according to LaingBuisson, a healthcare research company.¹ If you need nursing care, that number is even higher: £1,267 per week or approximately £66,000 per year.

The average man in his 60s has £228,200 in pensions wealth and the average woman in her 60s has £152,600, data from the Office for National Statistics show.²

So, based on average care home fees of £50,000 a year, a man in his 60s needing care could deplete his entire pension savings in around 4.5 years. For women, the situation is even worse. Care home fees could eat up their pension in just over three years.

Saving to cover costs like that just won’t be possible for most. It’s why many people in this position fall back on the value of their home, providing they own it. This means, of course, the property is then not available as a source of funds for retirement generally, either via downsizing or equity release.

No one likes to think about having to fund care costs, but forming a plan early can give peace of mind. Retaining the equity in your home as a course of action if care costs do come along can make sense.

5. Work for longer - but on your terms

Delaying the moment you quit work will obviously help your retirement finances. You can spend longer saving and less time spending down your nest egg. Few of us, however, will relish the thought of extending our careers longer than we have to.

But what if the work was on your terms, on hours that suited you and perhaps in a location close to home? Many newly retired people still have the energy and appetite to contribute. Official data suggest that males aged 65 years in England can expect to spend more than 10 years in good health on average. For females, it is more than 11 years.³

Any paid work during these years, even if it represents only a small fraction of the salary you used to earn, will greatly help your retirement finances in the long run.

6. Make the most of pension perks

Perhaps the most obvious way to prepare for the 100-year life is to save as much as you can to pay for it. If you are employed, your company may offer to pay into a pension for you and match your contributions up to a limit. Pay what you can into your pension so as to take full advantage of any help on offer.

Beyond that you can still get tax relief on contributions into pensions, whether that’s into an occupational scheme or a personal pension like a SIPP. A £1 contribution to pension costs you 80p if you’re a basic-rate taxpayer, as little as 60p if you’re a higher-rate taxpayer and 55p if you pay additional-rate tax. Exactly how it works will depend on the way your pension scheme operates its tax relief.

For high earners, a feature of the current tax system - the tapered annual allowance - could make it even more advantageous to pay into a pension. Once your earnings reach £100,000, each extra pound of income results in the loss of 50p of your tax-free personal allowance, which is the first £12,570 of your income. This creates an effective income tax-rate of 60%. This is the case on earnings up to £125,140, when the personal allowance has been tapered away completely and the 45% rate kicks in.

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Therefore, sacrificing income so that salary remains below £100,000, and paying this money into a pension instead, means you avoid this very high rate of marginal tax. Income from a pension can be withdrawn from age 55, with 25% available tax-free (up to a limit of £278,275) and the rest taxed at your marginal rate, which is likely to be lower in retirement.

The Government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.

Sources:

¹ LaingBuisson.29.02.24
² The Telegraph.10.01.25
³ Office for National Statistics. 12.12.24

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). If you are unsure about the suitability of an investment you should speak to one of  Fidelity’s advisers or an authorised financial adviser of your choice.