Latest analysis of income and average expenditure statistics by Aegon has found that spending falls by half amongst those aged 50-65 to those aged 75 and over.
Households aged 50-65 spend £463 a week, which falls to £373 between 65-75 and then £241 aged 75 and over.
Meanwhile, the analysis found that incomes decline by just 6% between 50-65 and over 75, from £556 to £521 – so while living costs decline, incomes remain relatively flat throughout retirement.
Since April 2015, the pension freedoms have given people aged over 55 greater control over how they spend, save or invest their retirement pots. While some feared retirees would splash their cash on luxuries, this hasn’t been reflected in withdrawal figures. For example, average withdrawals have been around £11,000 under the pension freedoms.
The dramatic fall in spending between the three stages is largely a result of reductions on items like transport and recreation. Younger retirees are predictably much more active and travel more frequently, spending £80 per week (50-65), compared to just £24 for those aged 75+. Recreational costs are also higher for younger, and likely more active retirees, spending £73 (50-65), compared to just £32 for those aged 75+.
Steven Cameron, pensions director at Aegon, said: “These figures really highlight the challenge of modern retirement. People now have so much choice over how and when they access their retirement savings but this freedom creates greater complexity as to how they should spread their income.
“Historically, people retired with a state pension and a defined benefit pension, which paid a fixed and sometimes inflation-linked income regardless of spending needs. Today, people are increasingly retiring with defined contribution pensions and have the opportunity to better match their income to suit their evolving lifestyle in retirement. This is a positive, but accurately predicting how much income you’ll need and when over a period which could last 30 years of more is a complex task.
“There are challenges like investment performance to consider alongside the potential risk of tax charges for making big withdrawals from your savings all of which really shows the benefits of seeking professional advice. The governments’ move to allow savers to take £500 from their pot tax-free from next April to spend on financial advice is therefore a step in the right direct if people are to be expected to get their retirement income calculations right.
“Over time we expect to see people increasingly drawing a larger income in early retirement to reflect their active lifestyles, while at the same time ensuring they have enough money set aside to cover any big costs in later life like care costs.”
