A new survey shows that over half of people heading towards retirement still do not have a full grasp of the range of options available in the years ahead.
The survey of 1,500 people carried out by Opinium on behalf of HL discovered that –worryingly – less than two fifths of people (39%) of people believe they have a clear understanding of their retirement options.
The remainder either said they didn’t or just weren’t sure – even when they might be retiring.Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said that: “We make some of our biggest financial decisions around retirement.
“Deciding when and how to retire, as well as how to draw an income, is hugely important – and, in the event of annuity purchase, irrevocable. However, the data shows there are worrying gaps in our knowledge that risk the wrong decisions being made.”
“At this age, many people may not have stopped work, but they can access their pension, and so the fact that only 45% of them said they clearly understood their options is concerning.”
By the age of 55, many people some may have a clear retirement date in mind, others may look to take a more phased run into it by winding down work over a number of years. These decisions will have big impacts on how income is taken so needs to be planned for.
Say HL, the key questions you need to be asking yourself include whether you want a guaranteed income for life or whether you are willing to continue to take investment risk with your pension.
If you opt for an annuity, you need to think about what type best suits you – do you, for instance, need to make provision for a spouse? Do you need an inflation linked product or level? Will you annuitise your entire pension in one go or are you looking to annuitise in slices as you age?
Considering these options is vital, as once bought, an annuity cannot be unwound.
Similarly, with income drawdown, you need to understand that your pot remains invested in the markets and be comfortable with the risk of that.
“As none of us know how long we will live,” says HL, “you need to be aware of the perils of taking out too much too quickly and the problems that may cause. You also need to think about what happens if markets dip and what it means for your budget if you have to cut back withdrawals.”
Options to overcome that contingency include keeping between one and three years of essential expenses in an easy access cash account, to supplement one’s income in volatile times.
How your RetireEasy LifePlan can help you plan for whatever future lies ahead
RetireEasy LifePlan subscribers are invariably savvy savers with a keen eye on what will provide them with a secure income in retirement.
The unique benefit of the program amongst consumer planning tools is that it allows the user to test out a series of different scenarios to assess what might happen if (for example) the amount they could draw down was affected by market turbulence, saving interest or inflation rates changed, or a major life event occurred.
“Stress testing” one’s retirement plans in this way is critical to ensure that they are robust – and that you have plenty of time to adjust your retirement plans or lifestyle if the unexpected occurs.
