Retirees look to leave a legacy instead of spending their fortunes

A new report reveals how much of their wealth people currently tend to spend in retirement

Most retirees don’t spend their wealth during retirement, but plan to pass it on instead, according to a new report by the Institute for Fiscal Studies (IFS).

The report found that on average individuals will spend just 31 per cent of their financial wealth between ages of 70-90.

Meanwhile, those at the top half of the financial wealth distribution spend slightly more of their wealth in retirement at 39 per cent.

This suggests that a large proportion of wealth will be left to younger generations. But for many it will come as too little too late, as a typical millennial will not receive an inheritance until they reach the age of 61.

Rowena Crawford, associate director at IFS, says: ‘Older people do not draw on their wealth much during retirement. The majority of homeowners do not move or access their housing wealth, and even financial wealth is drawn down only slowly.

‘This means that most wealth held by retired people is likely to be bequeathed to future generations, rather than spent. This will have implications for the level and distribution of resources among current working age individuals, particularly those with wealthy parents and few siblings.’

Tom Selby, senior analyst at AJ Bell, comments: ‘This research paints a fascinating picture of the way people spend – and in many cases don’t spend – their financial assets as they get older. Such thrift will be perfectly sensible in some circumstances, particularly where individuals have relatively small savings pots and choose to hold onto the money to cover any unexpected bills.

He adds that while some retirees will be leaving significant assets untouched in case they need to pay for long-term care as they grow older, others will be overly worried about running out of money during retirement and are underspending as a result.

‘Such reckless conservatism has been identified as a problem in the Australian pension system and may well prove to be a central issue for UK policymakers to address following the introduction of the pension freedoms in 2015,’ says Selby.

Steve Webb, director of policy at Royal London, echoes this concern. He says: ‘The IFS research suggests that the biggest concern about pension freedoms is likely to be about excessively cautious retirees spending too slowly than it is about reckless retirees blowing their pension savings on lavish living’.

-Are pension freedoms really making retirees better off?

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