Retirees want £21,000-a-year but 66% may see pensions run out

Could your pension run dry? Retirees want £21,000-a-year to spend – but two-thirds are warned their pension pots could run out

  • Many people who retired during lockdown could end up hard up for cash
  • Retirees need a pension pot of around £390k and the state pension, SLA says
  • Rising inflation means people look set to need even more cash in future years
  • But, some like Charles Wood, 65, are enjoying working in retirement 
  • Are you looking for financial advice? Find a financial adviser service 

Two-thirds of people retiring now are at risk of running their pension pots dry as they grow older, new research claims.

On average, retirees aim to spend around £21,000 a year in their retirement, which is nearly £10,000 less than the average household annual income across the country. 

Investment firm Standard Life Aberdeen says a retiree would need a pension pot of around £390,000 on top of their state pension income to cover a £21,000 a year spend over the course of a 30-year period.  

But it said that the average value of a Class of 2021 pension pot is lower than that at £366,000 – and a third admit to having less than £100,000 saved.

Will you run out of cash in retirement? Standard Life Aberdeen’s pension pot risk map

The state pension for the current year is £179.60 a week, which equates to just over £9,000 a year. ‘

Alarmingly, one in 20 plan to rely on this alone’, Standard Life Aberdeen said. 

It said inflation meant retirees would actually need ‘much more’ than £21,000 a year to spend in order to enjoy a comfortable retirement in future. Indicating that without substantial investment growth in retirement, many people’s pension pots will fall short of delivering what they hope for.

The extent to which retirees are at risk of running out of money during their retirement varies across the country.

Retirees in Yorkshire are at the greatest risk of seeing their pension pot run dry, while those in the East of England, Greater London and Wales are also far from out of the woods when it comes to having enough money for later life, according to the findings.

John Tait, retirement advice specialist at Standard Life Aberdeen, said: ‘Vast numbers of those retiring this year risk running out of money in their retirement.

‘Retirement is a marathon, not a sprint, and many could be going into it without sufficient preparation or planning.

‘Pension pots are without a doubt the most popular option for funding retirement, but it’s so important that retirees consider any other savings or assets they can use when deciding whether they can afford to retire or not.’ 

‘I’m working during retirement because I love what I do’

Clued up: Charles Wood, left, with his grandson, Wilf, two, right

Clued up: Charles Wood, left, with his grandson, Wilf, two, right

Charles Wood, 65, from south Manchester, enjoyed working in the medical industry supplying products such as replacement hips and knees and trauma items to hospitals and surgeons for over 30 years.

‘The pandemic pushed me over the edge to make a decision about my retirement’, he told This is Money. It compelled him to advance his plans to retire by a year.

Having done his own research and received professional financial advice, Mr Wood always knew the importance of saving for later life and has a number of workplace pensions, an annuity and savings, which will give him an income to last for 30 years. 

He hopes his retirement last year will give him more time to spend with his wife, three sons and four grandchildren, and the chance to enjoy old and new hobbies.  

But, he is also one of a growing number of retirees continuing to work. On a part-time basis, Mr Wood does some building maintenance and construction work, like laying patios and fitting kitchens. 

‘I’ve always had a passion for DIY and before I started work in the medical industry I’d worked with a builder’, Mr Wood told This is Money. 

He said: ‘I’m choosing to work in retirement because I love what I’m doing and I have the flexibility to select the jobs that I wan to do. For me, it’s about the fulfilment I get from getting the job done – something I don’t want to lose just because I’m no longer working full-time.’

‘I feel so relaxed at having more control over my day, but that doesn’t mean I’m not busy – I surprisingly have so much on now and I don’t know how I found the time previously to fit everything in!’. 

Mr Wood added: ‘My body will tell me when it’s time to stop work for good.’ 

For anyone starting out in their career Mr Wood recommends budgeting properly, starting to save into a pension and seeking professional advice as early as possible.

Working during retirement 

A growing number of people are continuing to work during retirement, with many enjoying the financial and emotional or social elements of a job. 

Some 56 per cent of those who retired in the past year do not plan to give up work altogether in their retirement, the research revealed. 

The Retirement Living Standards by the Pensions and Lifetime Savings Association shows what life in retirement could look like with three different levels of annual income

The Retirement Living Standards by the Pensions and Lifetime Savings Association shows what life in retirement could look like with three different levels of annual income

The coronavirus pandemic year has forced many people to revaluate what they want from their life and how they plan to fund it. 

Job cuts, market volatility and economic uncertainty have all played a part in making people stop and think about their pensions and money in later life. 

Worries about job security proved to be the most popular reason for seeking financial advice about pensions in the past year, the findings showed.

Mr Tait said: ‘While job uncertainty might seem a strange reason to get advice, this has been one of the most popular ones we’ve seen. 

‘Whether they have been made redundant, or are expecting to be when the furlough scheme comes to an end, for many a one-off payment like this could be an opportunity to unlock options not yet considered.’ 

Over a third also said they had concerns about their pension pot values dropping during the pandemic amid market volatility. 

‘I stopped work for good after being made redundant’

Karen, 61, lives in Scotland and sought advice about money in later life

Karen, 61, lives in Scotland and sought advice about money in later life

Karen, 61, lives in Scotland and has two children. She worked for a well-known retailer for around 16 years before being made redundant. At the time, she was also going through a divorce.

Karen, who has asked us not to publish her surname, admitted to This is Money that she was ‘absolutely clueless’ about pensions and eventually sought out professional financial advice.

She said: ‘I knew what I wanted from my retirement. What I didn’t know was whether what I had meant that I could take the plunge now, or whether I’d need to stay in work a little longer, and how much I could afford to spend in the years to come.’ 

At one point, she considered looking around for part-time work, but decided stopping work for good was the right decision for her.

For anyone starting out in their careers, Karen recommends ‘taking advantage of what comes your way’ when it comes to being enrolled in pensions and making the most of tax benefits. 

But, she also thinks it’s important to use money to enjoy life as well. ‘Life is too short and you need to enjoy it as well’, she told This is Money.