Spending Not Reducing Gradually Upon Retirement

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havenifa


Posted on: 10th October 2022

It is typically believed that people passing through retirement lower their spending, assuming that they do not have to pay for residential care. However, a summer poll conducted by the Institute for Fiscal Studies (IFS) has suggested that this is not the case at all.

Downward Drifts

In their recent research focused on the UK population data, it discovered that if the weekly per-person expenditure was simply plotted against age, there was a distinct downward drift between 62 and 72, with a drop of around 15%. Upon further examination looking at groups of retirees based on their year of birth – the outlook was quite different.

Within each group – following adjustment for inflation – expenditure generally rose year-on-year except for those into their 80s. It revealed that the younger the retiree, the higher their initial expenditure. This is probably because of greater pensions and other wealth.

The composition of that spending changed with age, with spending on motoring falling with age and holiday expenditure continuing to rise until the age of 80. If these spending patterns of current retirees are anything to go on, and an indication of how people will want to spend in the future, current savers may be best advised to not base their retirement savings on the basis that their overall spending will fall sharply during retirement.

What that means is that retirement plans may need a full review to be sure that thinking you can live with a decreasing income is a reality – even before considering the area of inflation.

Hard to Be Happy

In the new and complex world of low-interest rates, high inflation and managing drawdown, it is becoming increasingly hard to be happy with lower spending as you get older. Those born between 1939 and 1943 with above-average incomes have increased their annual spending by 7% (around £1,200 after accounting for inflation).

A major push for this increase has been the rising spending on holidays, with average spending per person rising by £430 between these ages.

More and more retirees are faced with tough decisions around their pensions and retirement savings. The current outlook for retirees and their spending habits are certain to lay the groundwork for people in the future in how much they want to be spending within retirement, and it is time to plan for it.

Planning Ahead

Planning drawdowns based on reduced spending needs in later retirement may be more detrimental due to unexpected shortfalls in older rage living standards. This makes more careful planning and expert advice from independent financial advisers Cheshire that much more important in planning.

Should you wish to re-evaluate your retirement planning Manchester and be sure that your financial future meets your needs, contact the team at Haven IFA today.