Newly retired people in the UK are under-budgeting and overspending by an average of £6,500 in their first five years of retirement, which has resulted in a rise in older pensioners taking on new credit, retirement specialist LV= revealed on Friday.
According to research conducted by Nelson Research for LV=, an average of £33,000 is spent on ‘non-essential luxuries’ by the average UK pensioner in the first five years of their retirement, with those aged 65 – 70 spending 33% more during this period compared to subsequent years. This has resulted in 33% of older pensioners taking out a credit card and 10% taking out a loan, while 9% are still paying off a mortgage.
The LV= survey showed that the average new retiree aged 65 to 70 will use their nest eggs to pay for luxuries such as electronic goods, foreign holidays, going to the theatre and eating out, which means that an average retirees savings pot of a £38,000, excluding any pension, will only last six years. The average retirement lasts 17 years.
Figures from the survey indicate that a new retiree will spend £1,280 on holidays in an average year, as well as £900 on eating out and £1,814 on recreational activities such as visits to the theatre and museums.
LV= also interviewed people who were still working and found that 22% of those aged over 50 intend to take a luxury holiday when they retire, 15% will purchase a new vehicle, 12% will take a cruise, 8% will pay for property renovation and 5% plan to buy a property abroad.
However, nearly a third of pensioners entering their sixth year of retirement said they have had to significantly cut down on spending to avoid spending all their savings, while over a third are concerned that their savings will run out. One in five strongly regrets overspending when they first retired.
Richard Rowney, managing director of LV= Life and Pensions, commented: “Retirement has changed; whilst previously retirees started to wind down once they left work, today’s retirees quite rightly want to make the most of the free time they suddenly have. It’s great to see that people are enjoying themselves in retirement however these numbers highlight the need for retirees to ensure they have financial flexibility in retirement. The average retirement is now 17 years, much longer than past generations, meaning your lifestyle and associated costs are likely to change over this period. For this reason, it is important that they consider structuring their income in a way that allows them to adapt to their changing needs.”