The American writer Ralph Waldo Emerson once said, “The first wealth is health.”
This pithy adage perfectly captures the idea that wellbeing is the most fundamental concern, as without it, no amount of material wealth can be enjoyed. However, that is not to say the two aren’t linked.
Indeed, your health and lifespan are two of the most influential factors in your long-term financial security, and how these two timelines map onto your finances, along with external factors, gives you your wealth span.
Read on to find out more.
Your lifespan and health span are not the same thing, though they can be equal in length
Your lifespan refers to the total number of years you live, while your health span is the number of years you spend in good health. These are two distinct timelines, though of course, they can end up being the same length.
For instance, it’s not uncommon for someone to be in perfectly good health and then die suddenly, whether through natural causes or an accident. However, a more common experience is for someone’s health to gradually deteriorate over time before they die.
Neither your health nor your lifespan can be predicted with any accuracy, but you can plan for variations in both.
A longer lifespan may mean you need a bigger retirement fund
Average life expectancy has increased over the last few decades.
Data from the Office for National Statistics shows that the average life expectancy at birth in 1981 was around 73, and now it’s around 81. By 2074, it’s projected to be around 86.
While an increase in life expectancy is generally considered good news, it can have significant implications for your retirement fund and wider financial plan.
Your retirement may now last far longer than you planned for and, for many, it could stretch beyond three decades. Of course, there are many for whom it won’t last so long.
The key isn’t to be able to predict how long your lifespan will stretch; rather, it’s to plan for how you can accommodate both a longer- and shorter-than-expected lifespan.
If you end up living longer, you’ll need a plan for how to generate retirement income that’s able to support you over the years. If your life is shorter than expected, you’ll likely want an estate plan in place to ensure the wealth you have remaining is tax-efficient and distributed according to your wishes.
Increasing numbers of people are experiencing shorter health spans relative to their lifespan
As discussed, your health span and lifespan are not the same thing, though they can end up being the same length.
However, with people living longer on average, it’s increasingly common to have a relatively shorter health span. This is because, as you age, you are more likely to develop age-related conditions, such as dementia or mobility issues.
Having a shorter health span relative to your lifespan can have considerable financial implications. For instance, you may need to pay for care, make home adaptations, or cover medical costs.
As with your lifespan, there is no way to predict your future health needs accurately, but you can prepare for how you will accommodate them and any related costs.
This might include buying an annuity, investing in protection, or finding ways to reduce the size of your estate to limit the amount that will be used to fund your care costs.
Your wealth span is determined by your finances, health, lifespan, and external factors
Your wealth span is the amount of time your money will last.
Of course, that is in part down to the decisions you make along the way. After all, £1 million could last 20 years in one person’s pocket and less than a year in another’s. So, your income and expenses are important factors in setting your wealth span.
But your health and lifespan are also key in determining the longevity of your wealth. The longer you live, the longer your wealth will need to last, and the longer you live in poor health, the higher the chance you’ll need to spend more.
Moreover, your wealth span is also influenced by factors outside of your control, such as inflation, market performance, and tax legislation.
Again, predicting how some or all of these variables will play out over time is impossible. However, cashflow modelling can bring all of the different factors together and create projections for how they could play out.
Cashflow modelling can help you explore how your finances would fare in a range of scenarios, such as:
- Living to 100
- Retiring at 60
- Needing care for the final decade of your life
- Experiencing high inflation while drawing from your pension.
By analysing your finances and then projecting how they could play out in different scenarios, you can understand your preparedness for the future. This can enable you to develop a financial plan that is ready for multiple scenarios and is adaptable under different circumstances, giving you peace of mind that you’re prepared for every eventuality.
Moreover, if you see that there are some scenarios you won’t be ready for, a financial planner can help you find ways to ensure you are. This could include boosting your pension contributions, improving your investment strategy, or exploring annuity options.
While you can never know what your health span and lifespan will be or what the future holds for the wider economic climate, you can be prepared to ensure your wealth span lasts for as long as you need it to.
Get in touch
A financial planner can work with you to create a plan built to be resilient and adaptable, so you can be prepared for whatever life brings.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
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.
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.
