When planning your future finances, it’s easy to focus solely on questions about how much money you have or are likely to have and whether it will be sufficient for your goals.
While these are undoubtedly important considerations, they only form part of the picture. You also need to know how your money will map onto your life as it progresses.
In short, you need to consider your:
- Health span
- Wealth span
- Lifespan
Understanding how these three timelines interact can help ensure your finances support a fulfilling and secure life. If they become misaligned, financial challenges can arise.
Read on to find out more about these three timelines and how they affect your financial plan.
Your lifespan may be longer than you think
Your lifespan refers to the total number of years you live. Thanks to advances in medicine, healthcare, and living standards, life expectancy has increased significantly over recent decades, meaning many people can now expect to spend 20, 30, or even more years in retirement.
Data from the Office for National Statistics (ONS) shows that the average life expectancy in 1970 was around 72. This has risen considerably in recent years, and further data from the ONS life expectancy calculator reveals the average life expectancy for a baby born in the UK is now around 88.5 years. For the average 40-year-old, it’s 85.5.
So, many healthy adults can now reasonably expect to live to their mid-80s.
However, as you age, your life expectancy increases. This is because your chances of living beyond the average age improve as you get older.
The average life expectancy for a 70-year-old now is 87. But this isn’t the full story. For instance, nearly half of 70-year-old women will live until they are 90, and more than 1 in 20 will make it to 100.
While living longer is generally positive, it also presents financial challenges. A longer life means your pension savings, investments, and other assets may need to provide an income for much longer than before.
Of course, it’s impossible to know exactly how long your lifespan will be, but understanding that it may be longer than you anticipated is key to your financial planning and ensuring you are prepared.
Your health span is usually not the same as your lifespan
Your health span is the period of your life spent in good health, free from illness or the need for support. Importantly, your health span and lifespan are not the same thing, though of course, they can last the same amount of time.
While people are generally living longer, they are not necessarily spending all of those additional years in good health.
Indeed, the Alzheimer’s Society estimates that around 1 million people in the UK are currently living with dementia, and that figure is projected to rise to 1.4 million in fewer than 15 years.
This is because, as people live longer, there are likely to be far more people living in poor health.
Your health span can have a significant impact on your financial plan. For example, poor health could mean you have to:
- Retire earlier than expected
- Pay for medical treatment
- Make home adaptations
- Cover care costs.
Again, while it’s hard to know your health span, it’s important to factor in potential future costs, such as for care or medical treatment, to ensure you have a plan should you or your partner need it.
This may not always mean setting aside extra cash. It could also mean you gift more of your wealth while you’re alive to reduce the amount that can be drawn on to fund your care, though this requires careful planning.
Much of your wealth span is under your control
Your wealth span refers to how long your finances can sustain your desired lifestyle.
Beyond taking steps to live a healthier life, your wealth span is the only one of the three timelines that is largely under your control. Spend less, save and invest more, and your wealth span will increase. Spend more, save and invest less, and your wealth span will decrease.
This may be simple in principle, but understanding what it means for your long-term security is trickier, particularly as your health span and lifespan are unknowable.
It’s also important to factor in how other variables can influence your wealth, such as inflation, market performance, tax exposure, and pension timing. All of these can have a significant impact on the longevity of your wealth.
The key is to ensure you understand your current wealth span, which is to say, how long your wealth would be able to maintain your lifestyle if nothing in your life changed. Then, you need to project how potential and inevitable changes in your life and wealth could unfold over time, which is what we will explore now.
Financial planning can help bring your lifespan, health span, and wealth span together
Financial difficulties can arise when your health span, wealth span, and lifespan become misaligned.
For instance, if you live significantly longer than expected, your wealth may not last as long as you do. Similarly, if your health deteriorates earlier than anticipated, you may face additional costs the moment your earnings fall.
Conversely, you may be near the end of your life and still have a considerable wealth span, which might mean you want to explore estate planning strategies to pass wealth on to the next generation.
The most effective financial plans recognise that the three spans are closely connected. Rather than planning for a single outcome, they build in flexibility to accommodate changing circumstances and unexpected events.
But as you have seen, planning for these outcomes is difficult, since they are nearly impossible to predict. This is where cashflow modelling comes in.
Cashflow modelling takes into account your current financial standing, including your:
- Income
- Assets
- Savings and investments
- Debts
- Expenses
- Pensions
It also accounts for external variables such as market performance and inflation. You can then project how your finances could play out over time in multiple scenarios, such as:
- Retiring early
- Needing to pay for care from 75
- Living to 100
Again, there’s no way to accurately predict what the future holds, but cashflow modelling allows you to understand the financial implications of different scenarios that may or may not happen. This can help provide you with peace of mind that you will be secure, come what may.
Or, if you see that you may struggle under certain conditions, a financial planner can then work with you to implement strategies now to help guarantee your future security. These might include:
- Paying more into your pension
- Investing in protection
- Rebalancing your savings and investments
- Buying an annuity
- Finding more tax-efficient ways to manage your wealth
In every instance, your financial plan can help provide the security and reassurance you need regarding your health span, wealth span, and lifespan, and how they all interact.
To speak to a financial planner, get in touch.
Email admin@stonegatewealth.co.uk or call us on 01785 876222.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The value of your investments (and any income from them) 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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