People coming up to retirement must be careful not to dip into their savings before absolutely necessary. But a YouGov survey has discovered that a quarter of 55- to 65-year-olds have already started using their pension pots.
At the same time, life expectancy is rising. A 65-year-old man can now expect to live to about 84-years-old, while a woman of the same age is likely to reach 86. Newborn babies are expected to live for an additional six years.
Those using pension funds early are not doing so because they feel confident that their savings will last – as two in five respondents expect their money to last only five years into retirement. This money needs to last longer as life expectancy increases.
The research also found that 57 per cent of those 55- to 65-year-olds surveyed would be unlikely to seek financial advice about withdrawing their pension in a lump sum, and only 5 per cent plan to wait until they are 70 to start accessing their savings.
Rob Burgeman, divisional director at Brewin Dolphin, expressed concern people are beginning to withdraw their savings too early, as this means that they will be living longer – but not necessarily better.
He said advisers should give their clients a balanced view and to look back over their family history for clues about how long their money will need to last.
“It’s difficult to overestimate the financial ignorance of many people,” he said.
This problem is not likely to fade away as generations progress. Research from BNY Mellon found that of those born between 1980 and 2000, nearly half said that they have not received any financial information from school or work, while 42 per cent simply took a “blind guess”. The remaining 51 per cent said they took an “educated guess” about how much they would need to save for retirement.
Mr Burgeman said advisers should encourage their clients to invest as early as possible so that compound interest can help savings grow over time.
