Personal Investing
Ed Monk, Fidelity Personal Investing 26 Jul 2017 01:15pm

Investing to cope with the fourth life stage

SPONSORED FEATURE: There was further evidence this week of one of the most significant trends affecting society and the economy - our ever ageing population

Caption: Something is likely to come between full employment and retirement.

Of most prominence was the confirmation on Wednesday that the age at which future retirees will be able to claim their state pension will rise from 67 to 68 in 2037–39, seven years sooner than is currently legislated for.

Behind the rise is the growing burden that rising life expectancy is placing on the state. Put simply, the number of people in retirement is rising as the multitudinous baby boomer generation enter its dotage and improvements to health and lifestyle mean elderly people are living longer.

As unpalatable as it may be, raising the age at which the state pension is paid is widely seen as necessary in order to future-proof the system. The result is anyone born in the period 6 April 1970 to 5 April 1978 will have to wait longer for their state pension.

The government is enacting recommendations laid out earlier this year by Sir John Cridland, former head of the CBI, in his review of the State Pension Age. Currently, 68 is the oldest that anyone will have to wait, but further rises in life expectancy may push that higher. A rise in the state pension age to 70 for today’s young people should not come as a surprise.

This, of course, raises questions about how we will cope with the transition from work to retirement. For all the mathematical justifications for a higher state pension age, it is hard to argue that a person can work in exactly the same way at 67 or 68 as they can at 27 or 28. Far more likely, and desirable, is that by that late age, they will be working fewer hours. Instead of chasing ever higher salaries until they retire, they may have opted to work for less in order to work more flexibly.

The old model of income being supplied by a salary up until a hard and fast retirement date, after which it is replaced by pension income of various sources, is being eroded with each passing year. In the future, far more common will be a sequence of intertwined employment and retirement changes.

Instead of three life stages - childhood, working life, retirement - a fourth stage will emerge.

For example, a person’s career could reach a crescendo of earnings and hours worked in their mid-50s. They might decide at that point to take time out in order to beef up their professional training, perhaps returning to education to learn new skills that can keep them employable as they age. Maybe they use pension or other savings early in order to fund this.

They spend the next ten years or so dialling down their hours at work, and moving into areas they believe can provide more flexible employment. By their late 60s they have reduced work down to the hours that they are willing and able to work, perhaps continuing with a day or so a week of paid employment even after they begin receiving pensions income.

Reliance on pension income alone may not come until their 70s. Instead of one retirement date, the change is spread over more than a decade.

Planning your finances to cope with this more complex transition to retirement will take careful consideration. Cash savings, investments, state and private pensions will all be put to use in funding various parts of the stages, underlying once again the importance of making the maximum sustainable contributions to savings during your working years, always within tax-efficient wrappers such as pensions and ISAs.

For those closing in on their retirement, the government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online here or over the telephone on 0800 138 3944. Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.

Ed Monk

Ed Monk

Ed joined Fidelity in 2016 following a 13-year career in newspaper journalism, most recently as investment editor at The Daily Telegraph. He was previously news editor and personal finance editor for, the money channel for Mail Online and has contributed articles to the Daily Mail.

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