If you’re planning to retire this year, do you know how long your pension will last? Your pension savings will have an impact on the lifestyle you can afford and your financial security later in life. Yet, research indicates that two-thirds of retirees risk running out of money, explains Andy Knight Chartered Financial Planner at Pembroke Financial Services.
According to a Standard Life report, the average person retiring in 2021 is 60 and has a pension value of £366,000. However, a third have less than £100,000 in their pension.
Andy said: “The research found the average retiree plans to spend £21,000 per year, around £10,000 less than the national average wage. Based on this income, retirees need a pension of around £390,000 on top of their State Pension to cover a 30-year retirement. As a result, even those with average savings could find their pension doesn’t stretch far enough.
“While 93% of those planning for retirement think they are financially ready to do so, 37% admit they worry about not having enough money to last the rest of their life. Having concerns as you retire can mean you don’t fully enjoy the next part of your life. Planning now can mean you retire with confidence.”
There are many ways those hoping to retire can prepare. Among the most common options are:
- Researching options online (55%)
- Asking friends and family for advice (30%)
- Getting support and information from their employer (23%).
However, the majority are missing out on professional retirement advice that’s tailored to them. Just four in ten soon-to-be retirees have spoken to a financial adviser. While it’s on a to-do list for some, 44% say they have no intention of meeting with a financial planner.
A financial planner can help you understand how your pension savings, as well as other assets, will translate into an income for the rest of your life. It’s a step that means you can have certainty that your pension will last throughout retirement, so you can focus on enjoying the next chapter of your life.
As well as understanding how your pension can provide an income, financial advice can help you manage other risks you may face in retirement that could mean you run out of money.
2 retirement risks 2021 retirees need to consider now
1. Inflation risk
Retirees on average plan to take an income of £21,000 a year to support them in retirement. However, over time this income will buy less and less. Inflation means the cost of living rises each year. The difference in a year can be too small to notice but over a retirement, it can have a significant impact on what you can buy.
Andy noted: “The Bank of England’s inflation calculator shows the impact inflation can have. Let’s say you decided you needed an income of £21,000 when you retired in 2000. To have the same standard of living in 2020, your income will have needed to increase to £36,148.26. If you haven’t considered inflation when calculating how to use your pension you could find your income no longer covers your desired lifestyle.”
2. Life expectancy
To make sure you don’t run out of money, considering life expectancy is important. How long will your pension need to last?
“Life expectancy has increased and it’s now common to spend decades in retirement. To have peace of mind you need to consider how your pension will last over this time. Remember, an average life expectancy is just that, many retirees will live beyond the average, failing to consider this could mean you’re not financially secure later in life,” Andy added.
Previous Standard Life research found a quarter of those aged 55-64 who are still working are only budgeting for their retirement income to last ten years or less. One in ten (12%) are planning for their retirement income to support them for just one to five years. Current life expectancy is around 82, meaning these retirees could face more than a decade without pension savings to rely on.
How can you ensure your pension doesn’t run dry?
If you’re nearing retirement, taking steps now can provide security for the rest of your life. Taking some time to understand what your income needs will be, and how they may change over time, is one of the first steps to take. From here, you can understand how you can use your pension, as well as the State Pension, savings, investments, and other assets.
As part of the financial planning process, we can work with you to create a retirement plan that suits your goals and provides confidence. That means having a plan that considers how your savings will keep pace with inflation to maintain your lifestyle, how long your assets need to last, planning for the unexpected, and much more.
Please contact us if you’d like to arrange a meeting to discuss your retirement.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.