After a working life of hard graft, it is only natural to look forward to health, wealth and happiness in retirement.
Unfortunately, the latest research suggests that the vast majority of us won’t reach that milestone with all three of those criteria in place. According to the Institute for Public Policy Research think tank, only 16% of women born today will reach retirement age in good health. Just 9% of men will do the same.
Healthy life expectancy can be very different to ordinary life expectancy, although clearly there is a strong correlation. Added to which, healthy life expectancy has risen more slowly — the average British woman can expect to live the whole of her last decade in poor health.
Your odds are better if you are wealthy and your job involves less physical wear and tear. Nevertheless, the overwhelming majority of people will be coping with a number of serious health conditions by the time they reach retirement age.
This has obvious welfare issues, but the financial pressures can be just as stressful.
A sudden health-related early retirement has much in common with being made redundant in your 50s and being unable to find commensurate employment. Your ability to build an adequate retirement pot becomes compromised at precisely the moment you discover that you are going to have to tap your savings earlier than you had anticipated.
The obvious takeaway is: Don’t bank on being able to shore up your savings later in your career. However, there are a number of practical steps you can take to prepare for such an unpleasant eventuality.
You could ensure that arrangements for your own care, and that of any dependents, are put in place before they are needed. Many ailments involve a deterioration in mental capacity and can ultimately lead to an inability to make decisions for yourself. In such circumstances, it is vital that you have in place lasting powers of attorney (known as LPAs). These allow a nominated person to legally act on your behalf if you are unable to do so yourself.
LPAs take two forms: One deals with your health and welfare, the other with property and financial matters. The latter might, for example, allow your nominated attorney to rent out your home to meet residential care fees.
An alternative strategy is for an attorney to purchase an immediate needs annuity. This provides a regular income to pay for residential care in exchange for a lump sum. Depending on the person’s age, this can cost in excess of 250,000 pounds ($300,000). The income from such an annuity can be tax-free if paid directly to the care provider. Note, though, that since the income stream ends when the patient dies, this latter strategy could prove extremely expensive if care is only required for a few months.
Wills should also be regularly updated, especially if you have children. Early versions might include details of who should care for them in the event of your premature demise. Later drafts, though, could involve adult children acting as your executors or provide them with the financial means to care for a vulnerable relative.