Most dentists have no idea how long they are going to live for, in fact most tend to underestimate. It doesn’t take a genius to figure out that knowing when you’re going to die is a fairly crucial ingredient to helping manage your money, especially as most people prefer not to run out of it. Clearly without the benefit of hindsight, this can be tricky but if you’re going to plan ahead you need to start making some assumptions.
The latest figures from the Office for National Statistics indicate that life expectancy at birth for males in England is 77.7 and 81.9 for females. If you happen to live in the South you’re likely to live even longer. Life expectancy if you’re already 65 is 82 and 85 respectively. These figures are averages so for a young associate there’s a good chance you’ll live longer than 90.
For those with NHS pensions, increases in life expectancy are not necessarily going to affect you financially as this risk is borne by NHS Pensions and ultimately the state. Once you’ve retired and taken your pension (after age 55) the pension is index-linked every year until death. The main risk with regards to longevity for these fortunate pensioners is if they predecease their spouse and the widow(er)s NHS pension then halves.
For those that are relying on personal pensions, the risk of longevity falls on the individual dentist. Not only are you at risk of equity markets during your working life, you are then subject to gilt yields which affect the amount of annuity (annual income in exchange for a capital sum) you can buy with your pension. At retirement you can choose to buy a level annuity or for a smaller initial pension you can opt for it to increase with inflation every year.
Gilt yields have fallen significantly in the last few years so you now need a much greater lump sum to buy the same level of income as you might have done in the past.
So if you’re planning to retire at 60, you may need to consider creating enough cash to provide for a further 30 years which is almost as long as most dentists entire working life. Many dentists are reducing their NHS commitments and increasing their private work and hoping to retire even younger than 60. They might find that the combined effect of increased life expectancy, and falling gilt yields means they have to work longer, reduce their expectations at retirement or just accept they’re going to run out of money.
For a bit of light entertainment I’ve just typed “death clock” into my favourite internet search engine, completed a couple of questions and discovered that my Personal Day of Death is Sunday June 12th 2061 – which takes me to over 90!