Retirees are more likely to pass on their wealth than spend it

11 June 2018

Retirees do not spend their accumulated wealth and will bequeath most of it, according to a new report from the Institute for Fiscal Studies (IFS).

The think tank has found that instead of spending wealth accumulated over a lifetime, today’s baby boomers will pass it on to their children.

Pre-retirees (those aged 55-64) have a median housing wealth of £185,000 and other wealth, excluding pensions, of £33,000, according to the report. Despite so much wealth being stored in property, only two in five pre-retirees will move house again in their lifetime. Of those who do, few move for financial reasons and housing wealth released by downsizing tends to be very limited. The median amount of money released was just £4,000.

The report also found that older retirees aged 70 to 90 years old spend very little money, drawing down on average just 31% of their accumulated wealth. This means that a large portion of their money will be inherited by their children.

However, younger generations in need of money to get on the property ladder will have a long wait: the report estimates that they will typically only benefit from this transferred wealth when they are in their 60s.

The IFS’s findings reflect in the significant differences in expectations between generations as to where they think their retirement income will come from. See the graph below for a breakdown by generation of expected sources of income in retirement:

Source: IFS, June 2018

Rowena Crawford, an associate director at IFS and author of the report, comments: “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.

“However, the IFS believes this trend will change over time as current workers’ pension wealth reduces in size. This will force more retirees in future to draw down from accumulated housing wealth in order to maintain their lifestyles in retirement.

Ms Crawford adds: “This will have implications for the level and distribution of resources among current working age individuals, particularly those with wealthy parents and few siblings.

“Given the increased freedom people now have over how they spend their pension wealth in retirement, carefully monitoring how the use of wealth evolves in future will be important, both for the living standards of the retirees themselves, and also for younger generations.”

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