Already retired and worried about running out of money? We can help

When we asked our retired clients about their biggest financial concerns, one of the most popular responses was “running out of money”.

If you are already retired and share this concern, you are not alone.

Keep reading to discover why the cost of retirement is going up, plus three important tips for drawing a sustainable income throughout your later years.

The cost of living, property prices, and increased life expectancies all play a part in boosting the cost of retirement

We all know that in the last two years, the cost of living crisis has made life harder for families, perhaps including yours.

One aspect of the high cost of living that you might have overlooked is how it affects your retirement plans.

Let’s take a look at a few of the key contributing factors in greater detail.

Inflation and interest rates

As you may know, inflation peaked at a 40-year high of 11.1% in October 2022, the Office for National Statistics (ONS) reports.

Since then, the rate has fallen to 2% (as of May and June 2024), which is in line with the Bank of England’s (BoE) target rate. But UK consumers are still feeling the effects of double-digit inflation, and are likely to for the foreseeable future.

In addition, at the time of writing, the BoE base interest rate remains at 5.25%, as it has done since August 2023, making borrowing more expensive than it was between 2008 and 2021.

Both these factors may mean your retirement savings do not go as far as you anticipated. Inflation can erode the real-terms spending power of your money, and higher-for-longer interest rates could affect the performance of your invested pension wealth.

Housing costs

If, like a number of our retired clients, you are looking at downsizing from your family home to a smaller property, today’s property climate could affect your plans.

Whilst Halifax reports that UK house prices rose by just 1.6% in the year to June 2024, prices have risen exponentially in the last 18 years. The ONS says that between December 2005 and December 2023, the price of the average UK home rose from around £188,000 to more than £288,000.

This might mean that your larger family home is worth more than you had ever anticipated, perhaps boosting your retirement pot when you sell up – especially if you no longer have a mortgage. However, any smaller property you buy may also be more expensive than you expected, potentially narrowing the margin of profit when you downsize.

Higher life expectancies

Life expectancies are rising. Whilst this is positive news – who doesn’t want to live a long, full life? – it does mean that you may be more likely to need care towards the end of your life.

For example, the ONS life expectancy calculator reveals that:

• A 65-year-old man has a life expectancy of 85, and a 25% chance of living to 92.
• A 65-year-old woman has a life expectancy of 87, and a 25% chance of living to 94.

Worryingly, research shows that those nearing retirement age routinely underestimate their life expectancy. A survey published by Professional Paraplanner reveals that over-50s estimate that they’ll live to 80, whereas the average life expectancy of a 50-year-old today is 84 for men and 87 for women.

Rising life expectancies could mean that you need to stretch your savings further. What’s more, later-life care costs as much as £1,160 a week, or £1,410 for nursing care, carehome.co.uk reports.

With all this to consider, it is no wonder that you might feel anxious about making your retirement pot last a lifetime.

Here are three tips that could help you ensure you’re on track for a long, comfortable retirement.

1. Be strict about budgeting

When you were working, you might have become accustomed to living within a budget. After all, if you were anticipating being paid a finite amount every month, it is likely you made an effort to budget carefully.

On the other hand, if you are drawing a flexible income from your pension (in addition to other sources, like non-pension investments and income from properties), you might play fast and loose with your annual budget.

Looking forward to the years that lie ahead, though, you may want to think twice about exceeding your budget. Small oversights can build up over time, meaning you deplete your money faster than you planned to, perhaps leaving you to face some tough decisions in your later years.

2. Look at the big picture

One of the beautiful things about retirement is that you can live in the here and now. Without the rigorous schedule of working life, you might feel much more relaxed and live life in a more spontaneous fashion.

Whilst it is important to stay present, looking at the big picture could help to ensure you aren’t running out of money too quickly.

For instance, you could try:

• Thinking about the possibility of needing expensive care in the future, and working out what you could afford to pay
• Continuing to make investments with a 10 or 20-year time frame in mind, in order to maximise the potential for returns
• Examining the true source of your happiness at this stage in your life, and cutting out any costly lifestyle choices that no longer serve their purpose.

A big-picture mindset might relieve some of your retirement anxieties and help you enjoy life to the full.

3. Take advice from an experienced Financial Planner

Financial planning has several benefits if you have already retired and wish to know if your money is likely to last.

In fact, Standard Life research reveals that those who take advice can fund their retirement for an average of six years more than those who retire without professional guidance.

Here at PenLife, we specialise in helping clients of all ages fund their goals and gain peace of mind.

If you are already retired, we can:

• Assess your tax liability and look for ways to lessen it
• Use cashflow modelling software to project how long your existing annual income is likely to last
• Create a bespoke plan that takes later-life care, inheritance plans, housing costs, and investment performance into account (among several other factors).

Managing your retirement finances alone can be time-consuming, and may inhibit your ability to simply relax and enjoy your well-earned rest.

To arrange a discussion with one of our Financial Planners, email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, or tax planning.