29% of retirees' reality falls short due to DIY approach

On the run up to retirement, many over 55s are opting to manage their finances without professional guidance, a decision that carries significant risks. According to research by Canada Life, a staggering 79% of individuals in this age group are navigating their retirement plans independently, without seeking financial advice. This DIY (Do-it-Yourself) approach contributes to nearly 29% of retirees finding their reality falling short of their dreams.

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Common pitfalls in planning for retirement: 

Many retirees are finding themselves unprepared for the financial realities of retirement. 

Factors contributing to this gap between their expectations and reality involve a failure to account for several critical aspects:

1. Health issues: The Canada Life study found that 36% of retirees reported experiencing unexpected health issues disrupted their retirement plans.
2. Inflation: About 21% of respondents did not factor in inflation, leading to a decline in purchasing power over time
3. Unforeseen expenses: Unexpected bills and expenses caught 13% of retirees off guard, indicating a shortfall in financial preparation.
4. Underestimating financial needs: A significant 11% of retirees underestimated the amount of money needed for a comfortable retirement.

This study underscores the critical importance of thorough and pragmatic financial planning before retirement. Tom Evans, Managing Director of Retirement at Canada Life, emphasises that through consulting a qualified financial adviser, retirees can address these factors proactively, ensuring more secure and fulfilling retirement.

Hurdles faced during retirement:

While understanding the pitfalls before retirement is essential, navigating the hurdles during retirement—such as managing your expenditure, income strategy, and adapting to legislative changes—requires ongoing attention.

Expenditure:

During retirement your needs will evolve, influenced by factors like inflation, healthcare costs, and lifestyle changes. The Pension and Lifetime Savings Association’s Retirement Living Standards study offers a helpful guide, showing that a couple aiming for a comfortable retirement might need an annual income of around £59,000, while a moderate lifestyle requires about £43,100 per year. Whilst this provides a good benchmark, your spending and goals are unique. As a result, it is essential to identify your specific expenditure needs and assess if they are sustainable throughout your retirement.

Income:

Strategising how to draw upon your assets to support your retirement is equally important. Ensuring that your assets work hard for you and that your funds are used in a tax-efficient manner is crucial. Retirees may have multiple income sources, across cash, pensions, ISAs, bonds and rental properties. Effective planning not only ensures tax efficiency but also can helps maintain or increase income potential during retirement. Seeking advice on how to take an income from your pensions and other assets is critical, as planning for the next two or three decades leaves little room for mistakes. 

Legislative Changes:

Recent and potential future changes to pension legislation, can profoundly affect retirement planning. Staying informed about these updates is crucial, however navigating these changes within the complex retirement planning landscape can be challenging. In these cases, working with an adviser can be hugely beneficial to provide guidance on how to adjust your plans to mitigate any negative impacts from legislative shifts and take advantage of any new opportunities that arise. 

A recent example of a significant change is the removal of the lifetime allowance. This legislation introduced two new allowances that affect the amount of tax-free lump sums or tax-free death benefits available from a pension. With the new Labour Government expected to release a budget this Autumn, it will be crucial to consider how these changes impact your retirement planning and to strategically respond accordingly.

A successful retirement plan isn't just about reaching a financial goal before you retire—it's about maintaining that security and adapting to changes throughout your retirement years. Regularly reviewing your expenditure, income strategies, and staying informed about legislative changes ensures that your plan remains robust and effective. 

Value of Advice:

Financial advice is of course not free so while many can see the benefits of receiving advice, the cost associated may be a driver behind why people are choosing to DIY (Do It Yourself) their plans. According to a report by the International Longevity Centre - ILC, individuals who receive professional financial advice are, on average over a decade, nearly £48,000 better off in pensions and financial assets than those who do not.  The study showed that the combined benefits of financial advice over a ten-year period are approximately 2,400% greater than the initial cost of the advice. This significant return on initial cost underscores the value of seeking professional guidance.

In summary, retirement involves many challenges, and the importance of robust financial planning cannot be overstated. Opting for professional guidance rather than navigating these waters alone could significantly improve your financial well-being during retirement and equip you with strategy to manage potential pitfalls effectively. Working with an adviser can ensure that as you transition away from work, you can feel confident in your future, providing you with peace of mind for a comfortable and fulfilling retirement.

If you’re thinking about your own future, we’re currently offering anyone with £100,000 or more in savings, pensions or investment a cash flow review worth £500. Why not get in a touch for a free initial consultation to see how we might help.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.

The value of your investments can go down as well as up, so you could get back less than you invested.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.  Your pension income could also be affected by the interest rates at the time you take your benefits.