Some people in the United Kingdom will be planning their later life finances on false premises around their assets and longevity.
A survey by Partnership shows the average person between the ages of 45 and 70 expects to have £76,406 ($140,212) when they retire, despite 18% admitting to having no work pension and 33% having no private pension.
While some may have that much in savings, many are likely to be over-optimistic about their savings. Those between the ages of 45 and 50 believe they will have saved £78,762 ($144,511) when they retire, although those between 66 and 70 say that £72,566 ($133,143) is more realistic.
“While many people have been successfully managing their finances throughout their working lives, making choices at retirement requires a slightly different set of skills,” says Andrew Megson, managing director of retirement with Partnership. “Not only do they need to have an accurate and honest view of just how much their pension assets are worth but also determine how long these need to last in order for them to enjoy a good standard of living in retirement.”
While people appear to be over-optimistic about their assets, there is a fundamental misunderstanding about the length of time that they will spend in retirement.
The typical person between 45 and 70 believes they will spend 16 years in retirement if they finish work when they are 65, but longevity statistics suggest that men will live 18.3 years and women 21 years. This suggests that there is a significant potential for people to underestimate how long their retirement savings need to support them.
A significant level of underestimation occurred throughout the country, with possibly profound implications for pension planning as people have more flexibility in the choices they make.
“Choosing to spend too much each year can result in people spending their final years struggling to survive, while spending too little means that they may enjoy a poorer quality of life than they deserve,” he adds.
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