Spendthrift pensions waste an average £33,000 of their money on luxuries they don’t need in the first five years of retirement.
This overspend has triggered a surge in borrowing for pensioners aged 65 to 70 years old, according to a study by financial firm LV=.
Much of the money goes on travel and holidays, with new retirees spending an average three week away from home in each of the first five years after they have stopped working.
As a result of spending too much, a third take out a credit card to bolster their finances, while 10% take a loan and another 9% divert funds from repaying a mortgage to spending.
Besides holidays, the luxuries they buy include electronics, like computers and TVs, eating out more often and spending more on entertainment, like theatre trips.
Luxury lifestyles
The financial firm points out the extra spend comes to £900 a year more than the annual state pension, and pensioners with the average pension pot of £38,000 will exhaust their retirement savings in six years.
Longevity figures suggest the average retirement lasts for 17 years – and the figure is increasing, according to the Office of National Statistics.
The financial firm asked over 60s approaching retirement how they intended to spend their time when they finished work:
- 22% were looking forward to a luxury holiday
- 15% wanted to buy a new car
- 12% were setting sail on a cruise
- 8% will spend on refurbishing their homes
- 5% planned to buy a holiday home overseas
Spending regrets
After five years of retirement, the study found pensioners faced drastic financial cut backs to make up for the extra cash they had spent.
A third slashed their spending, while another third were concerned they would run out of money and 20% regretted spending so much on luxuries they could not really afford.
When asked why they spent so much money on retirement, the researchers were told new retirees wanted to spend to ‘have a good life and enjoy their time as much as possible’ and that they felt they had earned the right to do so after working for so many years.
Around 10% regarded their spending as a retirement present and a fifth just wanted to treat themselves.
LV=’s Richard Rowney said: “Of course it’s good to see people enjoying their retirement, but not at the expense of their care needs in their later years.”
