07 Aug 2017

Will you face a financial shock when you retire?

Will you face a financial shock when you retire?

Millions of UK adults are in for a financial shock when they retire, according to a leading UK insurer.

A quarter of people are counting on discounts and free services to make retirement more affordable, but new research shows many drastically overestimate what they will receive.

Insurer Aviva said 23% of adults claim they have a good idea of the discounts and subsidies available for retirees.

But one in four mistakenly think rail travel is going to be free, while one in seven wrongly believe they won’t have to pay  council tax.

Worryingly, Aviva said a quarter of adults already think they will struggle to live off their pension, despite discounts and subsidies for retirees.

It also added that, with many overestimating the help they will receive, this struggle could be even more pronounced in reality.

According to the insurer's research, adults are currently spending £917 a month on running a home (excluding rent or mortgage costs), food, travel and holidays, family days out and hobbies.

The majority of people say they expect to spend the same on common areas of spending when they retire. However, nearly a third believe the amount they will spend on running a home will rise, while 29% expect to increase spending on hobbies. 

Rising cost of living

A common reason given for higher expenditure on essential items is the rising cost of living. Others say it is because they will be at home more, so will be forced to increase their expenditure.

For non-essential items such as travel, family days out and hobbies, the most common reason for spending more cited is having more spare time to fill.

However, not everyone will be able to afford to increase their spending in retirement due to having a reduced income.

Alistair McQueen, head of savings and retirement at Aviva, said: "Older generations benefit from a range of discounted or free products and services, but our research suggests many people expect these to be more generous than they actually are.

"Consumers leaning too heavily on incorrect assumptions about subsidies and discounts may be in for an unpleasant surprise when the financial realities of retirement finally dawn.

“The fact that some people are depending on fictional discounts to make their retirement more affordable – or anticipate struggling despite these benefits – paints a worrying picture of consumers being poorly prepared for the financial demands of retirement.

"Most people expect to spend the same as they do now, if not more, once they have retired, with rising inflation playing a key role. Those who experience a dramatic fall in income once they retire are therefore likely to struggle.

“It’s crucial that people plan ahead for retirement, considering their future budget needs, and understanding the discounts and benefits that could be available. Poor planning and misguided assumptions are likely to lead to disappointment in retirement.”

Retirement planning

Knowing how the land lies comes with experience. 

If you are planning your financial future, Aberdein Considine can offer you the support of some of Scotland's most talented and respected independent financial advisers.

Whether you want to buy a property, secure an income for retirement, pay for your children's education, provide for dependents or pass your estate to your family, we can provide you with a high-quality service which is tailored to your lifestyle.

Click here to learn more.

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