One in four have budgeted for their retirement income to last just 10 years, yet many will live for 15 or 20 years beyond the State pension age. Some could run out of money even sooner, with one in 10 planning for their income to last five years or less, according to new research from Standard Life. Retirement advice specialist John Tait said retirement income needs are hard to predict, and the pandemic has added to the uncertainty. “Many people are struggling to think more than five or 10 years ahead,” he added.
Tait said many expect to need the same level of income throughout retirement, but in practice it tends to vary: “People typically spend more in their early years as they travel or treat themselves, before their spending flattens out. Costs can rise again in later life, driven by care needs or assisted living.” He said aim to have enough income to support you to 90 or beyond: “That might seem excessive, but one in four will live until then.”
Despite the uncertainty, eight out of 10 over-55s have not sought financial advice on retirement income, and almost half will not do so.
The return of inflation is set to make retirement planning even harder, according to Ian Browne, pensions expert at wealth manager Quilter.
He said inflation is the “forgotten risk” but could soon come back into focus as global stimulus pumped out to fight the pandemic threatens to whip up prices.
Consumer prices rose 0.7 percent in the year to January but the Treasury expects it to hit 2 percent this year, and it could rise much higher when the recovery kicks in and people start spending money saved during lockdown.
Browne said inflation can have a “devastating impact” on people’s nest eggs: “At just 2.5 percent, money in cash will lose nearly half its purchasing power after 25 years.”
The State pension should keep up with inflation through the triple lock.
“Your own savings will not unless you do something about it,” he added.
Browne said cash is no longer king, so leave some of your pension invested in shares after retirement for greater income and growth: “You can reduce volatility by relying on a cash buffer to cover your daily outgoings.”
Another way to protect yourself against inflation is to buy an index-linked annuity.
The income may seem low at first, but will rise every year. However Browne added: “Remember, once you buy an annuity there is no going back.”
Alternatively, delay your retirement. “Salaries tend to rise in line with inflation, so you can contribute more to your pension, take advantage of tax relief and invest for above inflation returns,” he said.