Europe is turning grey as more people retire and are likely to live longer stressing social and economic policies across the continent, according to a new survey.
Table of contents
The European Commission 2015 Aging Report highlights the importance of retirement planning and gives some tips on how to save and manage finances to cope with the expectation of living longer.
Inflation, tax and longevity are the three variables that lead to financial problems for anyone living on a fixed retirement income, says the report.
Inflation eats into spending power, so someone recently retired spending £2,000 a month today needs to take account of an average 3% inflation rate for their retirement years.
After 10 years, maintaining the same spending power will cost £2,687 a month, after 20 years this rises to £3,612 and over 30 years, hits £4,854.
Tax and longevity
Tax is another unknown. Personal allowances for the over 65s are generally the same as those for everyone else, so drawing cash under flexible access or selling investments, such as buy to let homes need planning as the income or gains could push someone into a higher tax bracket.
Paying tax at a higher rate then reduces savings that were included in calculations for spending.
Governments are already looking at how much extra tax they will need for additional spending on long-term care and other social services for a growing, elderly population.
The final variable is how long with you live.
The latest research shows life expectancy at birth is predicted to reach 84 years old for a man by 2060 and 89 years for a woman.
Running out of cash
On average, that means retirement funding has to last for at least 20 years for someone giving up work aged 65 – and that’s the average, so many people are likely to live well beyond the predicted ages.
The real risk, especially for women, is that cash will run out during retirement.
“The report found that Europeans are likely to live longer and have fewer children across every country,” said a spokesman for the commission. “As the continent turns grey and the number of workers paying into the tax system to support their state pensions and healthcare falls from four to two, governments will have to make increasingly harder policy spending decisions.
“The report outlines how and when these changes are likely to occur for each member state and is meant as a policy blueprint for governments having to make these tough decisions.”
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