Despite fears of a lack of saving and pension and investment slumps due to the credit crisis, many couples retiring over the past 10 years have saved too much for their later years, say financial experts.
Looking at the retirement savings of couples born in the 40s, economists at think tank the Institute of Fiscal Studies (IFS) found their wealth was more than adequate to support them in retirement.
The IFS looked at two ways of measuring retirement wealth.
The first was the ‘replacement rate’ or how much a couple would need at retirement to maintain the lifestyle they had while still working.
With this financial model, the IFS reckons 84% of retiring couples could replace all their working income from savings and investments.
The second measure is averaging working life earnings while factoring in a retired couple pays less tax, have no children and no need to save for retirement.
This calculation disclosed more than 90% of couples born in the 40s have more money than they need to maintain their standard of living in retirement.
Many have up to £220,000 more – which produces a surplus annual income of around £7,000 if invested in an annuity.
The research indicates around 75% of couples have more money than they need in retirement by using this financial model.
The IFS report says the results show most couples born in the 40s saved more than enough for retirement.
“Different households had varying replacement rates, so it’s important to consider individual needs when building a financial model,” said the report.
“A quarter of couples were happy with 40% but another quarter needed more than 70%, with the rest falling in between. This demonstrates government policies should look more closely at the financial readiness of households for retirement.”
Cormac O’Dea, a senior IFS research economist and one of the authors of Retirement Sorted? The adequacy and optimality of wealth among the near-retired, said: “It’s clear from the research that most couples reaching state pension age in the past decade have more than enough wealth to maintain their standard of living well into retirement.
“In fact, they seem to have ended up saving more than they really need. However, it’s doubtful that future generations reaching retirement will be in the same position and that the situation will worsen as time goes on.”