Have you worked out how much you can afford to take from your pension pot?

Thousands of retirees shifting their pensions into drawdown are not taking basic steps to work out how much they can afford to take from their pot, putting them at risk of draining their savings too soon, according to new research[1].

Four years on from the introduction of Pension Freedoms, over 435,0001[2] people have shifted their pensions into drawdown. However, just a third (34%) of retirees in drawdown calculated how much income they would be able to generate from their pot before retiring.

Covering day-to-day living
A third (34%) calculated how much money they would need to cover day-to-day living expenses and, again, just a third (34%) considered how long their money would need to last, be it 20, 30 or 40 years. Even fewer (22%) calculated how much money they would need to fund leisure activities, such as going out for dinner and going on holiday.

Worryingly, this lack of planning also encompasses retirees’ investment strategy. Only 16% decided where they would invest their drawdown funds to achieve the desired income and as few as 17% decided which strategy they would use to withdraw income, be that selling units of investment funds or shares, or living off the dividends and interest and leaving the underlying investments untouched.

Relying on blind luck
Many retirees in drawdown are relying on blind luck to make their savings last throughout retirement. But by taking simple steps and obtaining professional financial advice to work out how much they can afford to take from their pot, savers can avoid withdrawing too much, too soon.

It’s not just retirees themselves that this lack of planning will impact; it also has consequences for people who are set to inherit this wealth. Just one in five (19%) retirees in drawdown have ensured that their partner has the financial knowledge and understanding to continue managing their investments.

Swamped by complex decisions
Only 15% of retirees have put a financial plan into place if they or their partner were to pass away. Many people don’t like talking, or even thinking, about themselves or a loved one passing away.

However, to pass on wealth efficiently and not leave loved ones swamped by complex financial decisions, it’s important that those set to receive an inheritance are engaged with financial conversations from the outset.

Knowledge is power: would you like to be part of a group which helps to empower women to make confident financial decisions for themselves and their families by providing knowledge, news, tips and hints? Join me in the Money Mastery Collective on Facebook – CLICK HERE TO JOIN.

Source data:
[1] Retirement Income Market Data Bulletin – https://www.fca.org.uk/publication/data/data-bulletin-issue-14.pdf
[2] Research undertaken by YouGov on behalf of Zurich. The online questionnaire was completed by 660 retirees who have entered drawdown and was undertaken between 3-15 October 2018.

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