Spendthrift retirees overspending their pensions

22 July 2008 / by Daniela Gieseler
UK pensioners fail to plan ahead when it comes to budgeting for their life in retirement, with many of them splashing out considerably more when they first retire, new research by Prudential reveals.

The findings show that 29 per cent of pensioners spend about £8,000 more in the first year of retirement than in later years, in a splurge they might come to regret when hit by the reality of living on a pension.

Whereas more than a third (34 per cent) admitted they just played it by ear, less than a third said they had set themselves a budget for retirement and only 17 per cent consulted a financial adviser for retirement planning advice.

In view of the current economic climate, this could be seen as risky, but 63 per cent stated they were sure they had planned their finances adequately before retirement.

Gary Shaughnessy, managing director of retail life and pensions at Prudential, said: "It is quite worrying to see the lack of planning people undertake as they approach retirement and it's particularly surprising to see how few of today's pensioners sought financial advice."

He added: "Seeing a financial adviser should be a baseline activity for everyone planning their retirement so that they structure their finances to maximise retirement income from all available sources, including pensions, savings and investments and equity in their homes, if necessary."

The danger is that people utterly underestimate how long they might have to live on their pension, and therefore are completely unaware about the implications of overspending in the first years of their retirement.

"It's easy to think that when you reach retirement your saving days are over - retirement is after all the main reason to save in the first place. The key is to carefully manage your money throughout retirement, ensuring you don't give away or spend money that you may need in 20 years time."

© Fair Investment Company Ltd