How long will your money need to last?

Will your retirement income last for life?

Once you’ve retired and are taking an income from your pension, you may wonder if there’s anything left to look after. While you know your date of birth and your current age, nobody knows how long they’ll live for and how long their money needs to last.

Some of your retirement income will be guaranteed no matter how long you live:

• State pension
• An annuity or income provided by a final salary
• Defined benefit pension.

Other sources of income may not be guaranteed for life, such as:

• investments – including ISAs and property
• drawdown – providing flexible access to your pension pot.

In particular, drawdown allows you the flexibility to take money from your pension without restriction. This could be as a regular income or lump sums.

If for instance, you withdraw too much, or if investment returns are lower than expected, you run the risk of running out of money. You need to take account of this in your retirement planning.

When you are working out how much you can take out from drawdown or investments, it’s a good idea to think about how long you may need it for.

How long might you live for?

As a population we’re all living longer. A 65-year-old, on average, has a current life expectancy of 85 for men, and 87 for women. Some people will live longer, and others will die earlier.

The Office for National Statistics shows estimates of your average life expectancy and the probability of living longer.

Although this is only a guide, it does help you think about how long you may need your income for.

Leaving a legacy from your pensions

However long you live, you may want to pass on a legacy. As well as leaving personal items, investments or property, you can also leave money left in your pension.

If you have an annuity

When you bought your annuity you may have built in certain guarantees that would pay an ongoing income or lump sum on your death. If you didn’t do this from the start then nothing would be paid on your death, meaning the income stops and no lump sum would be paid to your beneficiaries.

If you use drawdown

With drawdown your beneficiaries will inherit what’s left of the fund on your death. It can be taken as an ongoing income, a lump sum or even kept as a pension. If you die before age 75, it can be paid to your beneficiaries tax-free. However if you die age 75 or older, all payments will be subject to income tax at their marginal rate.

Nominating a beneficiary for your drawdown plan

You can choose anyone you wish (called a nominee) by completing a nomination or expression of wish.

Please let us know who you would want to leave your pension to in the event of your death. It’s easy to do this by completing a nomination form. While your nomination is not binding, it will be taken into account when paying death benefits. It’s therefore really important to keep this information up to date as your wishes and circumstances might change.

Contact your provider and ask for a nomination or expression of wish form to nominate who should inherit your pension.

Writing a will

A will records your instructions on what should happen to your money, property and assets after your death. A will makes it much easier for your affairs to be sorted out.

If you don’t have a valid will when you die, everything will be split according to the law. This means your estate might not go where you want it to go. Sorting things out without a will can then become lengthy and stressful to resolve.

Writing a will is especially important if you have a partner or family who are dependent on you financially. It is particularly important for future planning if there are possible Inheritance Tax implications – which is the value of everything you own, including property and money.

If your family circumstances are simple and straightforward, making your will can be quite easy. If your situation or requirements are more complicated – for example, following a marriage or divorce, you’ll need to be more careful of how you plan your instructions. This is also important if you want to leave things to specific charities or people outside your immediate family.

A will doesn’t have to be on fancy paper or use a lot of legal jargon. There are a number of ways you can arrange a will, such as:

• using a solicitor. Scottish Widows is working with Hugh James Solicitors to offer a will writing service.
• using a specialist will writing service
• writing it yourself, using a low-cost pack.

You can find more information on writing a will at moneyadviceservice.org.uk/en/categories/making-a-will