“Money is a guarantee that we may have what we want in the future. Though we need nothing at the moment, it insures the possibility of satisfying a new desire when it arises.” – Aristotle
Sometimes you have to ask the straightforward question – will your pension cover your costs in retirement? How much will you need each year? What plans do you have for life after work? Have you considered all possible eventualities?
If you are nervous about your pension lasting into retirement, it may (or may not) be reassuring to know that you are not alone. SunLife recently conducted a survey of over 50,000 UK adults aged 50 and over, and found that most of them are anxious about the state of their finances as they approach retirement age. 28% claimed that they were most worried about their finances, and 35% of those surveyed believed their cash would dry up before they die.
Unfortunately, this is not an anomalous standalone finding. Big 50 research also found that when they asked their participants what their biggest concern for the future was, 47% of them stated that they did not believe they would have enough money in their pensions to cover their retirement.
This is a staggering revelation when you consider that those aged over 50 have 80% of the UK’s financial wealth. Why are they so nervous?
Part of the answer lies in inflation and rising costs. Tilney’s report entitled Cost of Tomorrow ascertained that the average over-65 household can expect to spend around £420,000 during retirement. As individuals get older, they wish to enjoy the finer things in life and a relaxed lifestyle. At the very least, they should be able to maintain their current living standard. With inflation and the rising cost of living, they have a right to be nervous, every pound in savings has lost and is losing value!
Another aspect to consider is the way in which you grow your fund for retirement and how you then withdraw it. George Osborne famously stated that “no one ever needs to buy an annuity again” when he unveiled the pension freedoms. However, as the guaranteed income product continues to deliver a decidedly poor performance, are savers feeling brave enough to try other options? Now that the guaranteed pension default option is no longer delivering, which option do you choose?
What are people choosing at the moment? Currently, we appear to be approaching an age of hybrid pension plans. As people move from job to job and accumulate auto-enrolment pension pots, we see more and more retirees using different funds for different things. Some are holding off on purchasing an annuity until rates increase. Income drawdown is becoming a popular option. However, there is still no definitive pattern that is emerging as of yet. Perhaps that will change in the coming years.
Amidst growing fears that pensions will dry out, the prevalent behaviour suggests that savers are acting with caution. Most are trying to strike the balance between retaining value and ensuring that they have enough of an income. As life expectancy stretches the pensions for longer periods of time, we will have to see if the fears are justified.
At Avantis Wealth, we understand that retirement can mean different things to different people. Whether you are looking to relax after a busy career, to travel or spend more time on your hobbies, planning for your retirement is crucial. Whether you wish to improve your pension performance or simply want to know where you stand, we can help.
To find out more about how we might be able to assist you in getting the most out of your pension, call us on 01273 447 299 or email us at firstname.lastname@example.org.
Do you feel nervous about whether your pension will last you throughout your retirement? Have a question about why pensions have gone in this direction? Leave a comment below and we’ll get back to you as soon as possible.