Retirees not recklessly spending pension wealth

Older people are holding onto their savings and are reluctant to spend money impulsively, according to research from the Institute for Fiscal Studies.

A survey recently published looking at how individuals use their wealth once they retire finds many are not drawing down as much wealth as they could.

It says, on average, individuals will draw down just 31 per cent of net financial wealth between the age of 70 and 90.

Even among individuals in the top half of financial wealth distribution, net financial wealth appears to be drawn down by just 39 per cent, on average.

The IFS suggests this wealth, whether held in housing or in financial assets, is likely to be passed on to later generations.

However, inheritances will typically only be received at relatively older ages and so someone currently aged 40 might expect to receive a bequest from their parents at age 63.

An Associate Director of the IFS says the way wealth is inherited will have implications for the level and distribution of resources among current working age individuals, particularly those with wealthy parents and few siblings.

Therefore the increased freedom people now have over how they spend their pension wealth in retirement will require careful monitoring, she adds.

Royal London policy director Steve Webb says: “This report confirms that the vast majority of pensioners who have saved through their working life are cautious with their money and leave unspent wealth at the end of their lives.

“This is great news for those who believe in pension freedoms. The IFS research suggests that the biggest concern about pension freedoms is likely to be about excessively cautious retirees spending too slowly than it is about reckless retirees blowing their pension savings on lavish living.”

Two thoughts come to mind.  If you can afford it, i) use your income in retirement while you can enjoy it and ii) shrouds don’t  come with pockets!