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Advice and planning can deliver 49% uplift to retirement income


Old Mutual Wealth has today published its first Retirement Income Uncovered report, which shows the positive impact planning and financial advice can have on income levels in retirement.

Retirees who hadn't set themselves an income target to aim for in retirement have an average income of £17,500 per year, however, those who saw a financial adviser at least once have an average income in retirement of £20,800. In addition, seeing an adviser doubles the likelihood that a person will have a target, and those who had a target and saw an adviser have an average income of GBP26,000 a year, a 49% increase compared to those that did neither.

Old Mutual Wealth’s Retirement Income Uncovered looks into the level and source of retirement income for people already retired from full time work, plus those over 50 approaching this crucial part of their financial lives. The report provides the first concise picture of current and changing sources of retirement income, changing attitudes to work in retirement and also levels of satisfaction and understanding of the different sources of retirement income.

The study also takes a close look at income drawdown as a source of retirement income, comparing the potential income that drawdown can provide versus a traditional annuity. The calculations show it may be possible to secure the national average retirement income through drawdown with a savings pot 25% smaller than that needed if using an annuity.

Other key findings of the report are:

Retirement reality
• We expect retirement to last for 21 years
• 41% of retirees receive less than £15,000 per year
• There is a £7,000 gap between men and women’s average income in retirement

The changing face of retirement 
• Those approaching retirement are 25% less dependent on a final salary pension compared with retired people
• Those who have a retirement income goal are 63% more likely to be satisfied with their retirement income than those that do not

Planning pays
• Those who had a target income in mind before they retired have an additional £157,500 income over the course of an average retirement
• Retirees who used a financial adviser are more than twice as likely to have a target income in retirement – with an average income of £26,000
• One in four approaching retirement has a target income, compared to one in five current retirees.

The emerging world of pension drawdown
• Using an annuity to secure average income in retirement would need a pension fund of £237,000
• The same pot in drawdown could sustain average income for up to 37 years
• But even as income drawdown hits the headlines only 17% claim to have a good level of understanding of it
In addition, the report examines how other income sources are expected to make a greater contribution to the income of those yet to retire. As expected, access to, and reliance on, final salary pension schemes is on the wane and while property downsizing contributes an average of just 2% of income for those currently retired, this rises to a 15% expected contribution for those yet to retire.

Carlton Hood, Customer Director, Old Mutual Wealth, says: “Thinking about where your income is going to come from and having a target in mind clearly makes a difference to your outcome in retirement. So does seeking financial advice. More people yet to retire are setting goals that will make them better off in retirement, and our study clearly shows that advice pays.

“What is also clear is that retirement income is changing and people are preparing to use many different sources to fund this stage of their lives. The Retirement Income Uncovered report shows that people are adapting their behaviour accordingly and the picture of retirement income in the UK is not as bleak as some would like us to think.”

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