Do You Make Risky Retirement Finance Decisions?

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One in seven over 40s risk struggling with their finances during retirement, according to a new report.

They are considered high risk because they do not understand how the state pension works, how long they are likely to live and have unrealistic spending and lifestyle plans.

Another 43% of over 40s were tagged as medium risk because they lacked some knowledge about factors that would impact their spending in retirement.

The rest are low risk as they seem to have a good understanding of how their retirement finances will pan out, said the Retirement Risk Index from  Just Group, a company that sells financial products for retirement, such as annuities and equity release mortgages.

Retirement pitfalls

Spokesman Stephen Lowe said: “By asking questions based on capability and attitude the index seeks to discover whether people have the basic understanding about what retirement entails and whether that effects the pension decisions they are likely to make.

“What we have found is that half have an adequate idea of what the state will provide, with those closer to retirement having a better understanding of longevity. Coupled with realistic expectations about what they might do with their pension, it leads us to conclude they are on track to avoid the worst retirement pitfalls.

“One in 14 lacked the basic knowledge and the remaining four in 10 were weak in some key areas. The youngest respondents (40-44) and those just below 55 – the age at which most people can access their pension cash – were more likely to be high risk.

Good intentions but bad choices

“Once we focused on those who were planning to fully cash in their pension at 55 the proportion of those at high risk doubled to 14%. This is because these age groups were more likely to want to access all their pension cash early with no intention of using it for post-retirement income.”

The report explains that many over 40s have some financial knowledge and good intentions, they need to avoid bad choices by seeking independent advice.

“Guidance and advice are the best antidotes to the dangers that lurk when choosing how to use pension money, such as paying unnecessary tax or taking too much, too soon,” said Lowe.

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