Spending retirement savings – buy now, pay later?

Our latest research[1] examines ‘the lottery effect’ of retirement. With the average life expectancy of a current 60-year-old in the UK being 86, some retirees are facing a shortfall of nearly a decade[2] after spending their retirement savings too quickly. 

Behavioural experts suggest this could be down to ‘the lottery effect’, where the psychological rush of suddenly having access to large sums of money can spark impulsive or unsustainable spending.

We surveyed around 3,000 people over the age of 50 in the UK. One in seven (15%) felt the cash lump sum of their retirement savings was like an unexpected financial bonus, rather than considering it as part of their long-term savings plans. 

Many people underestimate how long retirement lasts. The new reality is that retirement savings often need to stretch across decades. Not only maintaining a lifestyle and covering the cost of essentials, but potential later-life care costs too.  

Retirement regret

Almost half (46%) said they accessed the cash simply because they could, just to have it to hand. One in seven (14%) who accessed cash from their retirement savings had regrets about doing so or spent more than they planned.

The majority (58%) of those surveyed accessed their pension without seeking any formal advice or guidance from their pension provider, an adviser or from support services like MoneyHelper. Among those with spending regrets, more than one in 10 (11%) admitted they didn’t fully understand the impact of their decisions.

The need for guidance

All of this highlights a knowledge gap. Retirees who take cash out of their retirement savings to put in a current account or just to have to hand, miss out on the potential rewards of keeping their savings invested – which can be far greater than cash savings. 

We’re helping to bridge the guidance gap by developing new innovative solutions to help DC clients and members understand their options as they approach and then navigate retirement. 

For example, our guided retirement planner helps pension members over 55 better plan for the duration of their retirement years. 

For most people, their retirement savings is the largest sum of money they’ll have access to, and after decades of hard work, saving and investing, it’s natural to view it as a well-deserved reward. However, with people generally living longer, it’s important to map out a long-term savings plan that considers the full retirement journey and different options available.

If you found this article interesting, you can find our latest content on DC pensions and investments on our designated DC blog page. This includes a blog on avoiding unexpected tax bills or losing access to benefits when accessing a pension.

 

[1] Research conducted, on behalf of Legal & General, by Opinium between 3-9 December 2024, among 3,000 UK over 50s. Visit the newsroom to read our research press release. 

[2] Calculations are based on the following assumptions:

• Inflation = 2.5% p.a.
• Expected life expectancies from Office of National Statistics calculator: Life expectancy calculator - Office for National Statistics
• Investment return on pension pot calculated based on CAPA average portfolio one day before state pension age (as at 31 December 2023), with 33% held in equities (5.5% p.a.)