Based on new research conducted by YouGov and Old Mutual Wealth, nearly 50% of those reaching retirement (aged 55-64) usually do not understand just how long their pension pot will survive. With pension providers reporting demand for withdrawals that are flexible, there exists a substantial risk that pension funds could run out if individuals tend not to plan carefully or take professional financial advice.
The survey of 1,000 individuals aged 55 or over found that the average pension pot was almost £90k, and the sum people expect to take from their pension each year in income on average is around the £9k mark.
The typical pension pot people who have access to the brand new pension freedoms could potentially last only 10 years even with a growth rate of 5% per annum put on the pension savings.
22% of individuals said they have no alternate resources of income and acknowledge that they are going to rely only on the State Pension. 36% say they’ll carry on working, whether part-time or not to supplement their pension earnings and the remainder have a few other sources of income including alternative investments or property which they can use as a viable back up.
Working out the length of time your pension savings will survive is not an easy thing to do many people simply estimate hoping that is a reasonable sum and that their investments will grow to fill their pot back up. To put it simply they’re banking on requiring 10% a year forever. The harsh reality is that if they aimed to take around half that sum each year their savings are far more likely to last for the 2 decades which many people tend to spend in retirement in this day and age.
Important to have a clear plan
The responsibility has become firmly the individuals to ensure they’ve enough cash to last their life, although the new pension freedom if approached right could be ideal for individuals who want to have greater control over their money. Some of us will feel confident enough to sort out their own finances but, for many, skilled financial guidance will help assemble a definitive plan focused on their own individual needs.
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,023 adults. Fieldwork was undertaken between 11-17 March 2015. The survey was carried out online.