The research by the International Longevity Centre – UK (ILC-UK) and Prudential busts the myth of older people splashing their retirement cash on leisure and holidays.
The report found that spending on most non-essential items begins a slow decline from our 50th birthdays onwards.
With the exception of early retirement, retirement does not lead to more holidays or other leisure activities.
Nor does retirement lead to a sudden splurge in eating out, according to the research.
Understanding Retirement Journeys, published this week in conjunction with Prudential, presents findings of detailed research into what retirement is really like.
Some of the key findings from the report include:
Consumption falls during retirement.
A household headed by someone aged 80 and over spends, on average, 43% less than a household headed by a 50 year old.
Many older households continue saving throughout retirement.
Individuals aged 80 and over are saving, on average, around £5,870 per year. ILC-UK calculate total per annum savings made by those in retirement in the UK today of around £48.7bn. This equates to 2.8% of GDP.
The majority of savings made by older people are sitting in low interest current accounts.
On average, retirees think they have a 70% chance of leaving an inheritance of £50,000 or more.
Contrary to popular perceptions, retirement does not lead to more holidays.
As we age, time at home alone increases while time spent with family and friends falls.
By age 90+, watching television and spending time at home alone are the most common daily activities.
Health appears to restrict an increasing proportion of older people from doing the things they want to do in retirement.
However, the vast majority of retirees say that they are able to do the things they want. Even by age 90+, 65% of the population say they can do the things they want “often” or “sometimes”.
ILC-UK argue that excess savings in retirement could have adverse macroeconomic implications, pointing to excess savings relative to investment in Japan which has acted as a drag on economic growth.
The think tank argues that if older people are saving, “we need to find effective ways of putting those savings to good use to help drive economic growth”.
ILC-UK is calling in the report for the introduction of a mass market mid-retirement financial health check and financial advice.
They also want to see the development of new rules of thumb which can be built into the financial guidance process.
To address the high savings levels in older people, they argue that the financial services sector should consider how it can help retirees maximise customers’ returns on these savings.
They also argue the Government should develop a long-term strategy to harness the savings made by retirees to deliver increased investment and drive forward economic output.
Given the reality of consumption falls in retirement, ILC-UK argue that typical decumulation strategies might reasonably prioritise flexible retirement income in the initial retirement period to help support consumption followed by secure income in later life to ensure people don’t run out of money before the end of their life.
This sounds to us like a sensible strategy for retirement planning.
When combined with cash flow forecasting and sensible assumptions about the future, it is possible to understand how much can be safely spent in retirement without running out of money during your lifetime.