Retirees Don't Spend their Money
12th July 2018
Poor planning can mean an opportunity is missed.
Older people are holding onto their savings and are reluctant to spend money impulsively, according to research from the Institute for Fiscal Studies (IFS). Ahow individuals use their wealth once they retire. What it found was that many are not drawing down as much wealth as they could.
On average, individuals will draw down just 31 per cent of net financial wealth between the age of 70 and 90. Even among individuals in the top half of financial wealth distribution, net financial wealth appears to be drawn down by just 39 per cent, on average. The IFS suggests this wealth, whether held in housing or in financial assets, is likely to be passed on to later generations.
However, a key point noted was that inheritances will typically only be received at relatively older ages and so someone currently aged 40 might expect to receive a bequest from their parents at age 63. There are further implications to consider concerning this situation. Without careful planning, some of this inheritance may be subject to Tax. Just as importantly, had people in retirement had a clearer idea of their wealth, they may have been encouraged to spend more in retirement or simply to have given more away to future generations.
Gifting earlier also means that it is more likely to that this gift would have been provided at a time when it would have benefited the recipient more. For example, many Grandchildren may appreciate some support with University fees or getting start on the property ladder.
Put simply, there are only two things you can do with your assets in retirement. You can either spend them and you can give them away (which you will do eventually). Whether you spend it or give it away, both are much more rewarding if you have an idea as to how you wish to manage the process.
What the survey highlights is that without some form of longer term plan, far too much of the wealth of those who are retired will remain untouched throughout their lifetime.
To read the full survey, simply click here