More Pensioners are Getting Wise with their Retirement and you can do the Same

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Posted on: 3rd May 2018

According to new research from Prudential, only 1 in 10 pensioners admit to overspending during retirement. In fact, 4 out of 5 pensioners say that their lump sum has been spent wisely since the launch of pension freedoms in 2015.

Money Savvy Pensioners

When pension freedoms were brought in by the government, critics claimed that the policy changes could potentially lead to pensioners running out of money in retirement, thereby increasing the burden on already-overstretched state resources. However, research by Prudential would suggest that this has not proved to be the case. In fact, only 10 per cent who have retired since these pension freedoms were introduced have admitted to overspending. The other 79 per cent of survey respondents maintained that any money withdrawn from their lump sum cash reserves had been spent wisely.

25 per cent of pensioners polled by Prudential used their pensions to pay off debts and only 6 per cent said that they initially withdrew more than the tax-free 25 per cent lump sum from their funds. Despite many fears that pensioners would find it difficult to resist the temptation to give away much of their lump sum to family members, most appear to have been very careful with the assets and have actually spent conservatively on their children and grandchildren.

Only 16 per cent of those surveyed offered money to their children for the purchase of a new home: and only 8 per cent helped children and grandchildren financially with their education costs. Only a quarter of Prudential’s 1,049 respondents admitted to having difficulties to living within their retirement income in the 3 years since the changes were introduced. Only 9 per cent were worried that taking out a lump sum had reduced their retirement income and would have longer-term consequences.

Making Money Last

Speaking about the survey, Prudential’s retirement income expert, Vince Smith-Hughes, said that research clearly showed that the fears that people would generally be reckless with their retirement funds were unwarranted. In fact, the evidence would suggest that they had, in fact, been sensible with their choices:

“Critics warned that there was nothing to stop people blowing all their retirement funds in one go, but the opposite is happening, and the decision to trust people with their own money has proved the right one,” he said

“The big challenge for people retiring is making sure that their money lasts the rest of their life and it is encouraging that people are taking a responsible attitude to pension freedoms.”

Keeping Control of your Pension Income

Although the survey would suggest that most pensioners appear to have been careful with their assets, and have not overspent: some may well have, and may now be ruing some of their decisions. What is important as you prepare for retirement is careful thought and planning. If you’re smart with your money; then your money will look after you. Here are some suggestions that might help you better prepare for a secure future in retirement.

Understand your income

Calculate how much income you will have at your disposal each month. If you’ve have taken out a lump sum, work out how many years you expect that amount to last and divide that figure by 12 to give you a monthly apportionment.
List all of your outgoings

Take a careful look at your outgoings and list every payment you make each month. Start with essential payments like mortgages, debts and bills, then work your way down the list. Don’t forget to take accounts of payments which are debited form your bank accounts yearly, 6 monthly or quarterly.

Review your everyday spending

Having worked out your income and expenditure, you should then know how much disposable income you will have available for occasional spending or saving each month. Keep an eye on expenditure throughout the month, and if you find that you are spending more on certain bills, like food shopping or dining out than you imagined, then you may have to economise or make savings elsewhere in the monthly budget.

Keep on top

If you make a clear plan and stick to your set budget, then many of the stresses of financial planning should be alleviated. Make sure you continually review your monthly budget and recalculate your outgoings if monthly expenses change. If you manage to pay off the mortgage, then you will have more money monthly to spend or save as you see fit.

Jamie Smith-Thompson, managing director at Portafina, says: “Budgeting is not just about pounds and pence – it also forces us to consider what is most important to us and how our incomes can help achieve current and future goals. It can have a highly positive impact on maximising money available in the “now” and open doors to saving in the future.

“Once in the routine of budgeting, you may well be surprised how much more money you really do have available to spend, how much money you have available to save for future goals and for retirement.”

Talk to the Experts

If you need to talk to someone about financial planning and preparing for retirement, then look no further than Haven IFA. Our experts are here to offer all the support and guidance you will need to save for your future and live comfortably in retirement. Get in touch to see how we can help.