You save all your life for retirement so presumably once the day comes and you stop working you get to kick back and spend all that cash. That’s one view of retirement. Another is that you will be so poor living on a fixed income that every penny you have will be spent on feeding and clothing yourself.
But, it turns out neither view is true.
Research has found that people in their 60s, 70s and 80s are the nation’s biggest savers - putting aside far more a year than younger generations. The average person aged between 70 and 74 saves £4,043 from their income. In contrast someone aged 40-44 puts aside on average 41 per cent less at £2,411.
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Part of the reason pensioners can afford to save more is because their expenditure falls dramatically after they retire. The research found that a household headed by someone aged 80 or over spends, on average, 43 per cent less than a household headed by a 50-year old.
The reason for this is that as we become older we spend less money on holidays, hobbies and nights out. And of course, the older people of today mostly own houses that they've completed paying the mortgage on. By the time someone hits their 80s over 50 per cent of their spending is on essential goods and services.
People aged over 80 are managing to save an average £5,870 a year, according to the research published by the International Longevity Centre.
Saving in the wrong places
If you are saving in retirement you need to think twice about where you are putting your cash, though. The majority of savings made by older people are sitting in low interest current accounts, according to the research.
Instead pensioners should be taking advantage of the same savings tools as younger people. This includes using up your Isa allowance - and potentially continuing to save into your pension if you haven’t started drawing an income from it.
“The research findings provide an insight into retirees’ actual behaviour that is unexpected yet thought provoking,” says Tim Fassam, head of public affairs at Prudential UK. “It points to financial advice being equally important in the latter stages of retirement as at the start, and of the need for our industry to focus beyond the point at which someone retires.”
In retirement it is an excellent idea to have a regular financial check up with an independent financial advisor. They can help you make sure that you are saving enough, aren’t going to run out of cash and also aren’t being too cautious with your money. They can also help you with estate planning to minimise your tax bill and check whether you need to plan for an inheritance tax bill.
“A big concern [when pension freedom came into force] was that people would spend all their money and be left with nothing,” says Sally West, income and poverty strategy adviser at Age UK on Citywire.co.uk.
“But the opposite may be the case for some and there is a concern that if you are not forced to buy an annuity then people are going to be too cautious.”
