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The warning signs you'll spend the last 30 years of your life poor

By Mirror | Published Thu, November 15th 2018 at 15:16, Updated November 15th 2018 at 15:19 GMT +3

Retirement is supposed to be a relaxing time, when you kick back after decades of work and enjoy the fruits of your labour.

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But there are concerns that a large number of people are in real danger of running out of money once they hit retirement.

According to new research from Just Group, around one person in 14 is at “high risk” of making particularly poor decisions over their later-life finances.

The research found that while half of over-40s have a basic level of knowledge needed to make good decisions around their pension and spending in retirement, a significant minority are in real danger of ending up penniless in their old age.

The study found that it was those aged 40-44 and the people just below the age of 55 who were most likely to fall into the high risk category.

So what are the knowledge gaps that are putting people at risk? And how can we avoid making those mistakes?

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How long are you likely to live?

The first issue is longevity, or how long we are all likely to live.

This is really important - while we can’t say for certain how long any of us will live as individuals, we can track life expectancy for different generations.

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And having a decent idea for how long you are likely to live will help you when it comes to making sure you save enough for those later years, and how to ensure you don’t blow the lot early into your retirement, leaving you to scrimp to get by later on.

Just Group tracked how long the different age groups expected to live, and how that compares to the Office for National Statistics’ projections, with some worrying results.

For example, men aged between 40 and 54 expected to live on average to 78.6, yet the ONS reckons it will be closer to 87.5. Women of the same age were also out by a decade, expecting to live to 80.5 compared to official projections of 90.1.

What help will I get from the state?

Another potential issue comes from our understanding of the state pension.

A massive seven out of every 10 over-40s underestimated the size of the state pension, in some cases by as much as £120 a month, while one in five had no idea at all what they are likely to get from the state once they retire.

Relying entirely on the state pension to cover the cost of your retirement isn’t a great idea - according to the Joseph Rowntree Foundation , the minimum income needed for an adequate retirement sits at £10,200 a year, just shy of £2,000 a year more than the full state pension.

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Nonetheless, having a good idea of what support you can expect to get from the state pension - as well as what conditions you need to fulfil in order to qualify for the full state pension - is really important if you are to ensure that you are in the best possible position going into retirement.

How am I going to use the money?

The final sticking point according to Just Group comes from our attitudes towards how we plan to use the money we build up in our pension pots, particularly the significant numbers who plan to cash their pension in as a lump sum and not necessarily put all of it towards generating an income in retirement.

The pension freedoms were introduced back in 2015/16, giving savers far more say over how their pension cash could be used, including the option to withdraw the whole lot in one go.

Indeed, there were concerns that this would lead to savers blowing the lot on fast cars and expensive holidays, and while that hasn’t happened to any great degree, evidently there are enough people over 40 who are hoping to do something similar to be concerned.

Too poor to retire

It’s not just the over-40s that are a little ignorant of the need to get their saving in shape for retirement.

A new report from Rathbone Investment Management found that a massive 47% of young investors reckon they will retire before the age of 60, with just 4% of millennials expecting to work beyond the age of 70.

This is particularly mind-boggling when two-thirds of respondents under the age of 35 said they had not yet started saving for retirement.

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Robert Szechenyi, investment director at Rathbones said: “Whether you are a millennial, Generation X or nearing retirement age you should be seriously considering how much you need to save in order to make the most of your retirement. If you are planning to retire before or at 60 then this could mean you need to fund yourself for 30 or more years.”

Making your money last

So how do you ensure that your pension pot lives as long as you do? The following steps are a good starting point

  • Start early - the earlier you start saving into a pension, the better, even if it’s only a small amount as the returns from that investment can snowball over time.
  • Take advantage of your boss - thanks to workplace pensions, employers are forced to open a pension for their employees and contribute to it. That’s effectively a free payrise, so don’t miss out on it.
  • Think long-term - yes, we’d all love to celebrate retirement by buying a massive sports car or going on a round-the-world cruise but that money needs to last a long time. It also pays to consider the tax implications of withdrawing huge amounts in one go.
  • What can I expect from the state? It’s a good idea to get a state pension forecast to check whether you are entitled to the full state pension. If not, making voluntary national insurance contributions can help buy you a bigger income in retirement.
  • Pensions reunited - huge sums sit in lost pensions that have been left behind as people switch jobs or move house. Use the free Pension Tracing Service to ensure that you have all of your pension pots at your disposal.

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