The newly retired are being surprised by the reality of life funded by a pension, according to retirement specialist LV=.
Those leaving work and living on a pension often spend the first five years of retirement budgeting poorly and overspending by an average of £6,500, which in turn is leading to the retired extending credit commitments or taking on new credit.
Of pensioners six years or more into retirement, a third have taken out a credit card, a tenth have taken out a new loan and 9% have yet to pay off their mortgage.
In the first five years of retirement pensioners typically spend nearly £33,000 on discretionary items, such as holidays, dining out and luxury goods.
According to LV=’s calculations of life expectancy and the typical size of a pension pot, this would mean the average savings pot (excluding any pension) lasting just six years, compared to the average 17 years of retirement.
A new retiree spends an average of over £1,800 per year on recreational activities, and over £1,200 on holidays.
In the first five years of retirement pensioners will spend 20 nights of the year on holiday, according to the Living Costs and Food Survey (LCF), which is more than any other age group.
LV= surveyed those over 50 and still working, and found more than a fifth (22%) said they would take a luxury holiday upon retirement, 15% will buy a new vehicle and 5% plan to buy a property overseas.
Whilst the desire to celebrate the end of working life is understandable, spending too much too soon could leave the elderly with little to live on in their later years.
Nearly a third of retirees entering their sixth year of retirement indicated they had to severely cut back their spending to avoid running out of money, and 34% are worried they might run out of savings.
LV= Life and Pensions Managing Director Richard Rowney explained that the average retirement period of 17 years is much longer than was previously the case, and encouraged those approaching retirement to seek professional financial advice.