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A new report from Standard Life Aberdeen suggests many people who plan to retire this year may run out of money at some point.
Deciding when to retire is daunting at the best of times, but even more so in the wake of a global pandemic.
A new report on adults who plan to retire this year shows many risk not having the pension savings to sustain their planned retirement income and that, even so, many have brought forward retirement plans due to Covid.
The report from Standard Life Aberdeen, based on a survey of 2,000 people, found that a 2021 retiree plans to spend, on average, £21,000 a year in retirement – almost £10,000 less than the average UK household income of £29,900, but their pension pots, including their State Pension, suggests that two thirds are at risk of running out of money. The calculation is based on an estimate that they would need £390,000 in savings on top of their State Pension income to cover their expenses over the course of a 30-year retirement.
The survey shows that the average value of a Class of 2021 pension pot is £366,000. However, a third of retirees surveyed – whose average age was 60 – admitted to having less than £100,000 saved.
John Tait, Retirement Advice Specialist at Standard Life Aberdeen, said: “Vast numbers of those retiring this year risk running out of money in their retirement. Retirement is a marathon, not a sprint, and many could be going into it without sufficient preparation or planning.
“Pension pots are without a doubt the most popular option for funding retirement, but it’s so important that retirees consider any other savings or assets they can use when deciding whether they can afford to retire or not.”
Tait says the three key things to bear in mind when planning your retirement are a review of your annual living costs; an understanding of how much you have in your pensions plan and in any other savings; and a sense of what income you can expect. The survey shows only 40% have sought financial advice, but 55% have done some research online.
Standard Life Aberdeen’s research also found that more than a third (37%) of those planning to retire this year are worried about not having enough money to last throughout retirement.
Just two in five (39%) feel very confident that they’re financially ready to finish working this year, with a third (34%) of women feeling very confident versus two in five (43%) men.
Almost half (48%) are planning to reduce their usual spending to support themselves in retirement, while a quarter (27%) will work part time to help financially. One in five (21%) are planning to sell their home or downsize to fund their retirement.
Despite many admitting to worries about whether they’re financially ready to retire this year, Standard Life Aberdeen’s research found that almost two in five (37%) of the Class of 2021 have accelerated their planned retirement date in the past 12 months due to Covid-19.
Lockdown changing their retirement plans, health worries due to the pandemic and job uncertainty were the three main reasons for speeding up their retirement.
However, there are clearly some apprehensions about retiring during a pandemic. More than half (51%) are worried about not being able to do things they planned, while two in five (43%) are concerned they won’t be able to see friends and family.
When it comes to their finances, three in ten (29%) have concerns about their pension falling in volatile markets, and almost one in five (17%) have seen their income fall over the past year.
Ben Hampton, Head of Retirement Advice at Standard Life Aberdeen:“Deciding how and when to retire is one of the biggest life decisions and transitions we make. Longer life expectancy, volatile investment markets and ever-changing regulation can make planning and preparing for retirement feel confusing, not to mention the impact of the coronavirus pandemic on people’s immediate and longer-term financial priorities and plans.”
Standard Life Aberdeen’s Class of report also interviewed 2020 retirees to see how they’re getting on. Despite Covid-19, seven in ten (70%) said they were happy with their decision to retire last year.
Not having to go to work is what the Class of 2020 are enjoying most about retirement, followed by spare time and spending more time with family.
More than a third (34%) have enjoyed taking up new hobbies – with the main ones being gardening, fishing, and baking.