As people are living longer, they risk using savings they thought they would never have to in order to keep up with rising bills, or they may need expensive care, which can devour an inheritance.
Britons are warned that it is a “dangerous mistake” to depend on inheritance to fund retirement as circumstances have changed and the amount expected may be significantly less than expected causing a struggle in retirement.
Those starting to plan for their retirement should ensure they are as accurate as possible about their sources of income and how much they will have to avoid disappointments and hardship.
Sarah Coles, head of personal finance, Hargreaves Lansdown said: “We’re banking on an inheritance to fund our retirements, but this is a dangerous mistake. Life and relationships are far too complicated to stake our future financial security on. It means millions of people could be left high and dry if the plans of their loved ones change.
“It’s impossible to know what lies in store for our loved ones. They may decide to throw caution to the wind and spend their savings on the retirement they really want. They may need expensive care, which can devour an inheritance.
“They might change their mind about who they leave money to – especially if they start a new relationship. It means you could end up inheriting less than you expect – or nothing at all.”
Some people could be particularly reliant on an inheritance to fund retirement – including women (37 percent compared to 32 percent of men).
Research from Hargreaves Lansdown found this may be because they tend to have less in their pension pots after taking time away from work for caring responsibilities and living with lower average wages.
Britons are warned that if they expect inheritance to play a part in their retirement plans, they cannot rely on it.
They need to still be able to afford to retire if they get less than expected, it comes later than they initially thought, or they end up without one.
There are many people who are expecting inheritances that will never materialise.
One way this can happen is if a loved one has used equity release to dip into the value of their home.
Usually, homeowners are more likely to plan to leave an inheritance, however, if they’ve used equity release, the debt and interest may have rolled up to such an extent that when the property is sold, an unexpectedly significant chunk goes into repaying the equity release company, so there’s little left to leave.
Depending on their circumstances, the taxman may take a slice too. Even if someone does inherit assets, there’s the risk that it might not come at the time they’d ideally like to retire.
Individuals may be in their 70s by the time of their inheritance and left with the nightmare of waiting until a loved one passes away before they can afford to stop work.
Helen Morrissey, head of pensions analysis at Hargreaves Lansdown said: “Your essential expenses should be covered regardless of whether or not you get an inheritance. This can come from a combination of state pension, workplace and personal pensions as well as any other investments.