Soon-to-be retirees are at risk of exhausting their retirement savings early and aren’t adequately planning for changing income needs in later life, according to new research from Standard Life.
A quarter (25 per cent) of those aged 55-64 who are still working say they are only budgeting for their retirement income to last ten years or less, despite a current average life expectancy of 82 years.
One in ten (12 per cent) are planning for their retirement income to support them for just one to five years.
John Tait, Retirement Advice Specialist at Standard Life, said: “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 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.”
Standard Life’s research found that three in ten (29 per cent) of over 55s still working expect to need the same amount of money each year throughout their retirement.
Meanwhile, just over 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.
John continued: “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. 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? Working with a financial planner can help you make these short-term decisions with greater confidence about the long-term impacts.”
Despite the uncertainty around future financial requirements among those nearing retirement age, Standard Life’s research also found that 80 per cent of over 55s haven’t yet sought financial advice in relation to their retirement income needs, with 46 per cent having no intention to.
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