Pension savers nearing retirement are at risk of exhausting their savings pot too soon or failing to adequately prepare for later life, according to new research from Standard Life.
Its findings show that as many as a quarter (25%) of those aged 55-64 who are still working say they are only budgeting for their retirement income to last ten years or less, while one in ten (12%) expect their retirement income to support them for just one to five years. This is despite a current average life expectancy of 82 years.
John Tait, retirement advice specialist at Standard Life, said: “Many people are struggling to think more than five or ten years ahead, meaning they’re not only at risk of not saving enough for retirement but also might not be taking into account how their needs could change.
“Some people will spend more in their early years as they travel or treat themselves with a big purchase, meaning their income needs will probably flatten out over time. However, costs can also rise in later life, driven by factors such as care needs or assisted living.”
Standard Life’s research found that three in ten (29%) of over-55s still working expect to need the same amount of money each year throughout their retirement, while just over a quarter (27%) are unsure of their retirement income needs and how they will change over the years. This trend was more pronounced among women, with nearly a third (31%) expressing uncertainty, compared to 22% of men.
Tait added: “When preparing to retire as an individual we recommend ensuring you have an income to support you until age 95, or to age 90 if you are planning your finances as a couple. That might seem like an excessive age to base a plan on, but the reality is people are living longer and one in four people approaching retirement now can expect to live until then.
“Thinking about how your life might change in the future may also help you develop a better picture of how much you may need and how much you can spend in the early years. Do you want to spend more now and less in the future?”
However, the research also showed that 80% of over-55s haven’t sought financial advice about their retirement income needs, with 46% having no intention to seek advice.
Andrew Tully, technical director, Canada Life, said: “Significantly underestimating life expectancy and running out of money are two of the key risks people face when thinking about their retirement planning.
“Men are typically underestimating their life expectancy by almost five years, and women by six, so having a financial plan in place that can flex and adapt to changing circumstances through the retirement journey is key. There are various tools and calculators available to help, but most people will benefit from receiving proper financial advice.”
