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Pension shortfall faced by those nearing retirement

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Soon-to-be retirees aren’t planning properly for their changing income needs in retirement and face exhausting their pension savings early.

That’s the conclusion of a new study from Standard Life, which found that one in four of those aged 55 to 64 who are still working are budgeting for their retirement income to last less than a decade.

That’s despite the fact that the current average life expectancy is 82 years.

More than one in 10 (12%) are planning for their retirement income to disappear even more quickly, at between one and five years.

Despite this, the research found that around a third (29%) of working over-55s expect to need roughly the same income each year throughout their retirement.

In addition around a quarter aren’t sure of their retirement income needs, nor how that may change over time. This is particularly acute with women, as almost a third (31%) admit uncertainty around their income needs once they finish working.

Planning for the future

John Tait, retirement advice specialist at Standard Life, noted that many people struggling to think more than five or 10 years ahead, and this means they are risking not only failing to save enough for retirement but also accounting for how their income needs may change after their leave employment.

Tait added: “Some people will spend more in their early years as they travel or treat themselves with a big purchase, meaning their income needs will probably flatten out over time. However, costs can also rise in later life, driven by factors such as care needs or assisted living.

“When preparing to retire as an individual we recommend ensuring you have an income to support you until age 95, or to age 90 if you are planning your finances as a couple. That might seem like an excessive age to base a plan on, but the reality is people are living longer and one in four people approaching retirement now can expect to live until then.

How much have I saved?

The research follows a study last month from Unbiased which identified significant numbers of self-employed workers who have reduced their pension contributions, or even paused them entirely, due to the impact of the pandemic

It warned that these Covid pension ‘holidays’ were putting their retirements at risk.

Ensuring that we are saving enough isn’t helped by difficulties in tracking the various pension pots we accrue over our working lives either. Research by mypensionID found that around two-fifths of Brits have at least three different pension pots in place, but we are still some way off the launch of pension dashboards which should make managing multiple pensions easier.

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