Ensuring you have a regular income to give you a comfortable retirement is a key issue when planning your post-work years, but would your pension plans cover the cost of a one-off expense? Well, it appears that this could be an important consideration, as over half of over-55s expect or have faced a large lump sum expense once they have finished work.
According to research by Aegon, 56% of respondents aged 55+ are likely to encounter a large expense during retirement. Topping the list of possible expenses is the cost of home renovations (26%), followed by holidays (22%) and contributions towards family events, such as a wedding (14%).
However, these pricy one-off expenses may be difficult to meet if they aren't prepared for in advance, and it seems that few have put the necessary groundwork in place: just 6% of those questioned felt ready for retirement, which leaves a large number of people feeling doubtful about being able to cover the cost of future expenditure.
Another worrying finding was that just over a tenth of those questioned (12%) anticipate having to pay for long-term care in their old age, despite the fact that more and more people are living longer. This could mean that unless pension funds are managed carefully, there could be a shortfall in income should the retiree's health decline.
Preparing for the cost of unexpected expenditure once the work boots have been put away should therefore be a priority, but while 61% of retirees consider securing a regular guaranteed income (such as an annuity) to be a priority for their retirement planning, only 32% of respondents also thought about the importance of being able to cover unexpected costs.
Commenting on the findings, Duncan Jarrett of Aegon said: "For people opting for a fixed income in retirement, lump sum expenses will have to be managed carefully so that they can meet all their expected obligations without damaging their quality of life. With life expectancy of today's future retirees ever increasing, consumers need to pay special attention to their expenses and ensure they have a degree of flexibility should something unexpected emerge."
The pension freedoms that went live in April give retirees more choice over how they secure a retirement income than ever before. However, with an expanded choice comes the added responsibility of choosing a retirement plan that works for you. For some, an income drawdown arrangement may be the best option to secure an income and cover one-off expenses, while others may want a combination of income drawdown with the guaranteed income of an annuity.
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