How will your spending habits change in retirement?
It will come as a surprise to nobody that retirement is one of the biggest lifestyle changes you’ll ever experience. But as your priorities shift and the free time available to you increases, what you might not be as aware of is the way in which your spending habits are likely to alter too. A recent study analysed the spending patterns of households during the first six years of them entering retirement. Surprisingly, nearly half of the households (45.9%) actually spent more in the first two years than they had before retiring, declining to 33.4% by the sixth retirement year. This wasn’t just seen in wealthier households either; the distribution across income levels was roughly the same. So what are pensioners spending their money on, and why are so many spending more than before they retired?
Many spending choices have been given a boost thanks to the recent introduction of pension freedoms, making big one-off spends that much easier. Holidays are popular, with around a third of those aged between 55 and 75 planning to take a lump sum to enjoy some time travelling, many indicating they were looking to spend anywhere in the region of £2,000 to £5,000 on a luxury trip away. One of the more conventional forms of expenditure is home improvement, with around 20% of pensioners planning to put their savings towards doing up their home. It’s not just general DIY either, as many mention they plan to splash out on a new kitchen for their retirement.
The things money is being spent on by retirees offers a few surprises too. Around one in ten people aged 55 and over plan to use their savings to start up a small business or go into consultancy. Others are looking to invest their pensions in property, with the fairly recent boom in the buy-to-let mortgage market accommodating this new desire. And just as the ‘Bank of Mum and Dad’ has become more and more prolific, the ‘Bank of Gran and Grandad’ is also on the rise, with around a third of retirees using their savings to help out younger family members with university fees and living costs.