Reaching the retirement age can be a daunting experience for many.
Not least because a recent study by comparison site finder shows that one in five adults believe that they only need £3,333 per year for their pension pot, which is drastically below the current state pension of £8,767,20.
So what are the problems faced by those nearing retirement?
Udit Garg, head of wealth management at Sun Global Investments, highlights how most people underestimate the costs associated with retiring.
He adds: “This is concerning as it shows a lack of planning and understanding on the retirees part and could result in failure to cover costs such as bills, mortgages and other essential elements they will need to pay in order to live out their remaining years as desired.”
Ricky Chan, chartered financial planner and director at IFS Wealth and Pensions confirms the tax implications of pensions makes cost a key concern for those due to retire.
“Pensions and retirement income planning are complex and mistakes can be costly – for example, retirees will need to consider tax implications of drawing their pensions, whether or not to buy annuities, how any funds in drawdown should be invested and what a sustainable level of income for them would be.”
Inability to work longer
Helen Morrissey, pension specialist at Royal London highlights that while some people will continue to work for longer, some may not be able to due to health constraints.
She says: “If they find there is a shortfall then it can be too late to save enough money to make up the gap and while some people will be able to continue working, others may be unable to due to health issues or a shortage of suitable roles.”
Ms Morrissey adds that this is often exacerbated by the fact that “many pension providers only start sending out wake up packs six months before the customer’s retirement date”.
This is why she says Royal London has begun sending out these packs five years before retirement to customers to help people commence the process of thinking out how their retirement will shape out and ensure they have the finances to make this happen.
Fiona Tait, technical director at Intelligent Pensions, confirms this view and highlights how younger generations may have unrealistic expectations fuelled from the retirement benefits received by older generations.
“People often build up an unrealistic picture of retirement based on previous generations of their own family," she says.
Increases in life expectancy, changes to workplace and state pension arrangements and different economic conditions means people retiring now have to save much more than their parents did in order to provide the retirement they thought they would have, according to Ms Tait.
She adds: “For some [working longer] is not an option, perhaps due to ill health or family responsibilities and the result is having to survive on considerably less income than they are used to and/or would like to.