Crunching the numbers to see how much money you need to save to finance a comfortable retirement often does not add up.
Most people approaching retirement work on the basis that they will need the same amount of money every week, but new research shows that this is unlikely to be the way money is spent.
The figures showed that spending drops by almost half for pensioners aged 75 and over, while income remains constant.
Looking at three age groups, researchers found:
- 50 to 65 year olds had a £556 a week income, spending £464 a week
- 65 to 75 year olds had a £524 a week income, spending £373 a week
- Over 75s had a £522 a week income, but spent just £241 a week
The results suggest that the over 50s fail to consider their changing circumstances over the years and could make more money available earlier in retirement.
Spending breakdown
Analysis by financial firm Aegon, which carried out the study, explains the big fall in spending as the result of spending less on recreation and transport as retirement savers get older.
A more detailed spending breakdown showed the youngest age groups spent £80 a week on travel, compared to £32 for the over 75s.
Steven Cameron, pensions director at Aegon said: “These figures really highlight the challenge of modern retirement. People now have so much choice over how and when they access their retirement savings but this freedom creates greater complexity as to how they should spread their income.
“Over time we expect to see people increasingly drawing a larger income in early retirement to reflect their active lifestyles, while at the same time ensuring they have enough money set aside to cover any big costs in later life like long term care.”
Matching income to lifestyle
Pension freedoms that allow retirement savers to draw money to spend as they wish from savings are changing the way people think about funding retirement, said Cameron.
“Historically, people retired with a state pension and a defined benefit pension, which paid a fixed and sometimes inflation-linked income regardless of spending needs.
“Today, people are increasingly retiring with defined contribution pensions and have the opportunity to better match their income to suit their evolving lifestyle in retirement. This is a positive, but accurately predicting how much income you’ll need and when over a period which could last 30 years of more is a complex task.
“There are challenges like investment performance to consider alongside the potential risk of tax charges for making big withdrawals from your savings all of which really shows the benefits of seeking professional advice.”
