Those approaching retirement run the risk of exhausting their pension funds as they are failing to plan for their retirement according to new research from Standard Life.
The provider says that a quarter of those aged 55 to 64 who are still working are only budgeting for their retirement income to last a maximum of 10 years. One in 10 are planning for their retirement income to support them for just five years.
In reality many will need their funds to last longer with the current average life expectancy standing at 82 years.
Standard Life, retirement advice specialist John Tait says: “Your long-term retirement income needs can be hard to predict. The ongoing uncertainty brought on by the pandemic has only made that even more challenging.
“Many people are struggling to think more than five or 10 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.”
Standard Life’s research found that three in 10 (29 per cent) of over 55s still working expect to need the same amount of money each year throughout their retirement.
Meanwhile, a quarter (27 per cent) aren’t sure of their retirement income needs and how they will change over the years. Women are more unsure than men of their annual income needs in retirement, with a third (31 per cent) reporting uncertainty around future income requirements, compared to 22 per cent of men.
Tait points out that people income varies throughout retirement. “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.
“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.”
He says this 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.
This research also found that 80 per cent of over 55 have not sought financial advice in relation to their retirement needs, and 46 pr cent of those surveyed said they had no plans to do so.
Tait adds: “ “Taking financial advice from an expert adviser can be helpful when it comes to thoroughly planning for retirement. They can assess your income sources and savings, consider your retirement goals and, perhaps most importantly, explore what costs you might need to prepare for in the future.
“Anticipating all possible costs well in advance can help you feel more comfortable about spending the money you’ve worked so hard to save, and needn’t adversely affect your retirement plans – you might even have more available than you think.”
Phil Brown, director of policy at The People’s Pension, said: “These findings back up the research we published early this year which showed that a significant number of people are sleepwalking into retirement and would benefit from better guidance. Our joint New Choices, Big Decisions report shows why policy makers must require pension schemes to guide members to products which match retirement risks, including living longer than they had planned for, and which will ensure that defined contribution pension savers have an income throughout their retirement.”