Retirement is a lovely concept – think cruises, lie-ins, reading on the beach, etc. But the reality can be somewhat underwhelming, and indeed, those years can often be very challenging – both for health reasons and financially.
People are living longer than ever before, with many now expecting to live at least 15 years after finishing work. In 2013-2015, men aged 65 could expect to live to age 83, whilst for a woman, it was 86.
Three of the main reasons that people struggle financially in their retirement are discussed below.
- Spending too much too soon
This is something that is so easy to do.
Often, people are keen to make the most of the early years of their retirement, where travelling is easier and taking up hobbies such as golf seems more worthwhile. This makes sense, but it is key to remember that you could potentially spend two or three decades in retirement.
Withdrawing your tax-free lump sum as soon as you hit retirement can be very tempting – especially if you want to use it for something specific (perhaps to help your son or daughter onto the housing ladder).
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- Not reviewing pension investments
You should really be reviewing your investments regularly (even before you reach retirement) to enable you to get the most from them and plan for the future. It is useful to have a rough idea as to what return you can expect from your investments.
3. Withdrawing your pension into your current account
This may seem like the sensible thing to do, as it gives easy access to your money, but in reality, current accounts give little or no interest, so it makes sense to look at other options. If you intend to withdraw the maximum 25% tax-free lump sum that you are allowed to, you will want to make sure it goes in an account that is both accessible and generates interest – because it may have to last you a while. Having it in your current account can make it too easy to spend and it will not generate any interest.