Investments and savings are viewed as more stable, guaranteed sources of retirement income than annuities by today’s retirees, according to new research from Fidelity Worldwide Investment.
The report looked at both those approaching and already in retirement, and found that today’s retirees have key misunderstandings around which retirement options offer a guaranteed, secure income.
Just under half of the UK’s over 55s (47%) prioritise security of income until death when investing retirement savings, whereas only 39 percent would look to annuity to cover their basic, essential living costs. Over half (52%) think that savings and investments would be able to fulfil the role of lifetime secure income and 13 percent believe a reliable source is some form of employment and the remainder would look to various investment sources or family members.
Also revealed, over 55s view accessibility as the second most important factor (38%) when securing an income for life. This suggests the concept of security is very closely linked with the ability to ‘get hold’ of monies, which explains why investments and savings score more highly and a ‘tied up’ option such as annuity is less valued.
Not surprisingly, 88 percent said they will use their State Pension to cover costs. However, even if the average retiree qualifies for full ‘flat rate’ of £155 a week, this would still leave a shortfall as the average respondent estimated that their essential out-goings alone will cost £755 a month. With figures from the DWP showing that only 45 percent of those retiring between 2016-2020 are set to qualify for the full amount, retirees will need to find other sources of secure income to cover their everyday costs.
Richard Parkin, head of retirement at Fidelity Worldwide Investment says:
“Retirees quite rightly prioritise guaranteed income as the bedrock of retirement planning however, it’s clear there is some misunderstanding as to what this constitutes. When all else fails, retirees should always know that they can keep food on the table and maintain the roof over their head which can only be achieved with securing a guaranteed income for life. As it stands, only annuities, DB schemes or the State Pension fulfil this criterion.
“Income sources such as savings and investments, employment and other options are great sources of additional monies but they should not be relied upon for covering your essential expenses. Once you know the basics are covered, it’s only then that retirees can invest the remainder in a meaningful fashion, taking sensible risk through a diversified portfolio which will allow them to enjoy their hard earned retirement.”
Amie Filcher is an editorial assistant at HRreview.