I’m 25 with a 13.2% chance of living to 100: what do I do?

As a 25-year-old, my life expectancy is the last thing on my mind. Well, that was until a colleague recommended me this nifty life expectancy calculator from the Office for National Statistics.

Based on my age and gender, I have a 1 in 4 chance of living to 97 years and a 13.2% chance of living to 100 years. Crikey. I mean it is good news. That’s more years to waltz around art galleries but it does raise some serious questions about how I’ll plan for retirement.

Help! we’re living longer than ever before

In 2022, almost 10% of the world’s population were aged 65 and over. Since then, this age group has been growing. It’s expected to hit 16% in 2050, and eventually 24% by 2100.¹

The increase in life expectancy is due to rising living standards, as well as medical advancements and improvements in nutrition. Of course that’s great news but it has massive implications for retirement.

Larry Fink, chief executive of BlackRock, the world’s largest asset manager agrees. In his annual letter to investors, he warned of the potential ‘retirement crisis’ the world may face.

“We focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years,” said the chief executive.

Preparing for the ‘phased retirement’ revolution

So, how can I afford those extra years? Well, the obvious answer is working for longer. But I propose a new system - ‘phased retirement’.

Instead of the traditional three-stage life, education, work and retirement, longer lifetimes will be funded by longer careers. That may mean more part-time work and more work in our later years that may be founded on our hobbies and interests.

I’m part of Generation Z, the cohort that succeeds millennials and I’m not afraid of this shift towards phased retirement. The idea of ceasing to work after a certain age never quite appealed to me. I don’t mind working for longer, especially if that entails a job that I enjoy.

And it’s a sentiment my generation shares. Nearly half of Gen Z said they would move to part time work once they reach retirement age, rather than stopping work altogether.² This is a massive contrast to 76% of current retirees who stopped work entirely at retirement, rather than phasing into it.

And this phased approach to retirement could provide a boost to pensions.

For example, someone that began working on a salary of £25,000 per year and paid the minimum monthly auto-enrolment contributions (that’s 5% employee, 3% from an employer) from the age of 22 could have a total pension pot of £434,000 by the age of 66.

However, someone that worked part time for 3 days a week for 3 years beyond retirement could find themselves £71,000 better off in retirement, assuming they leave their pension untouched. Please note, both these figures are an illustration based on 3.5% salary growth a year (after charges) and are not guaranteed.³

• How to save for retirement in your 20s and 30s

There's also another trend worth noting - more people are working multiple jobs. According to the Fidelity Global Sentiment Survey 2023, 22% of respondents across all age groups shared they currently have multiple jobs. This number nearly doubles when it comes to Gen Z - with 40% of respondents among my generation reporting they have multiple jobs. You may be pondering why. Well, the most common reason across all age groups is to save for the future.

How will the phased retirement revolution gain momentum?

There are pearls of wisdom to pluck from countries with a large aging population. Look to Japan and you’ll see phased retirement is already happening. Japan’s retirement age currently stands at 65, but its employment rate among Japanese retirees is the second highest in the world.

The number of Japanese people over 65 is expected to increase to 35% of the population by 2040, according to the National Institute of Population and Social Security Research. Consequently, the Japanese government is shifting towards a society that prioritises ‘lifelong work’ to tackle the country’s labour shortage and essentially have the elderly foot more of their medical and nursing bills.

Working longer also provides people with purpose. A recent trip to the cinema to watch a Japanese film called ‘Perfect Days’ provided me with some insight into this. The film follows a man in his 60s who works as a public toilet cleaner. He benefits from a disciplined routine, has regular social contact, takes regular bike trips, interacts with nature and, most importantly, makes time for his hobbies - music and reading.

My plan to thrive as a potential 100-year-old

Firstly, I must let go of that subconscious ‘here for a good time, not a long time’ mentality because as the calculator shows, I’ve got many, many decades ahead of me.

Secondly, I want to continue creating and maintaining my financial foundation. I plan to contribute even more to my accessible rainy-day fund. A longer life span inevitably means more chance for emergencies, and I want to be prepared. I also need a chunk of my money to be accessible in case I need to take time out - perhaps I want to take a career break, or I want to pivot into a different career. Being able to do this should stretch my ability to work longer and later and an ISA is easily accessible.

And I want exposure to the stock market, so I will continue contributing a regular amount to my stocks and shares ISA, opting for low-cost funds. This flexible pot, if I don’t use it all, will be handy to supplement my retirement income as I get older.

I will continue contributing to my pension which will certainly be my financial guardian angel in my later years. I’ve been regularly contributing to a pension since I started working but I want to contribute even more. I can’t forget the power of contributing a further 1% or adding in one-off payments to my pot.

• Will you hit your retirement goal? Simply answer 5 questions find out if you're on track

I am also mindful that this money will be tied up until I’m in my fifties or sixties - that is the payoff for the generous tax breaks on pension saving. The current age of access for private pensions is 55 but it will rise to 57 for most people on 6 April 2028, when the state pension age will rise to 67. And further pension age increases are likely.

•  How fast will the State Pension age rise? (fidelity.co.uk)

I am also focused on how and where my money is invested. Last year, I self-selected my own funds in my pension. I know an ageing population will create lots of investing opportunities, including greater demand for healthcare, technology, and the merging of the two - biotechnology. I’m also backing artificial intelligence, which I believe is on track to shake up every industry in the world.

My next thought is what will happen with markets over the next couple of decades? Will the US be the largest stock market when I approach retirement? Will China and India - countries with some of the world’s largest populations - trailblaze in the future? I know I want some exposure to emerging markets.

By the time I hit retirement age, the world I’m living in will look very different. It’s impossible to predict which companies and markets will be the winners or losers. One thing is for certain, I want to make sure my portfolio is diversified but I also don’t want to play it too safe. That’s why I’m comfortable taking more risk in my portfolio.

Ultimately, my goal is to live a long, meaningful, and fulfilling life. I’ll leave you with this parting thought. The original title for Perfect Days was ‘komorebi’ a Japanese word which roughly translates to “sunlight leaking through trees”. I hope I can reach 100 never forgetting the sunlight or trees. I know financial security will help me get there. Here’s to hoping.

• Read my colleague Andrew Oxlade’s plan for a 37-year retirement

Sources

1. United Nations, 1 May 2024 
2. FT Adviser, 8 April 2024
3. Standard Life, 3 April 2024

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Investments in emerging markets can be more volatile than other more developed markets. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.