A quarter of retirees have only 10 years of cash

Life expectancy and underestimating income needs behind the worrying findings.

Soon-to-be retirees are at risk of exhausting their retirement savings early, after research found a quarter of those aged 55-64 are only budgeting for retirement income to last up to 10 years.

The analysis, by Standard Life, also found that 12% are planning for their retirement income to support them for just one to five years.

Standard Life’s research found that three in 10 over-55s who are still working expect to need the same amount of money each year throughout their retirement.

Around a quarter aren’t sure of their retirement income needs and how they will change.

Women were more unsure than men of their money needs in retirement, with around a third reporting uncertainty around future income requirements, compared with 22% of men.

Standard Life warns that retirees risk running out of money, and that these approaches ignore changing income needs in later life. The current average life expectancy of 82 years is also a factor when it comes to exhausting retirement pots.

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John Tait, retirement advice specialist at Standard Life, says: “Your long-term retirement income needs can be hard to predict. The ongoing uncertainty brought on by the pandemic has only made that even more challenging.

“Many people are struggling to think more than five or 10 years ahead, meaning they’re not only at risk of not saving enough for retirement, but also might not be taking into account how their needs could change.”

He adds that some people will spend more in their early retirement 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.

The research underlines that people aren’t saving enough for retirement or taking advantage of stock market returns that they could gain over the long term in pensions or ISAs.

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Lisa Johnstone, a chartered financial planner for VWM Wealth, says: “I have yet to see an individual state at retirement, ‘I wish I hadn’t put all of that money into my pension,’ and it is rare that a sustainable level of income from pension and savings surprises on the upside.

“People also tend to suffer optimism bias where they assume that negative events such as divorce, job losses, ill health and death won’t affect them.”

She says the best way to plan for retirement is to actually plan, look at your bank statements, work out what you need and how you can invest to get there or what part of your expenditure you are happy to cut.