Are you set for a U-shaped retirement? You'd better hope not

Why traditional retirement income patterns may not suit

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What shape do you expect your retirement to be? It's not a question many people have considered - unless 'sofa-shaped', 'world-cruise-shaped' or 'golf-club-shaped' is an acceptable answer. However, it's something we all need to consider when we're planning our retirement.

The terms relate to your retirement finances, and come in four variants - the long, flat line; the L-shape; J-shape and U-shape.

Traditional shapes

We're all familiar with the long, flat, line. It's the kind of retirement income you get from a defined benefit pension, or if you were to spend all of your defined contribution pension pot on a level annuity. It has the big advantage of giving you a guaranteed and reliable income for life. However, there's little flexibility for changes in your circumstances.

We're also familiar with the L-shape. In this instance, we take a nice big tax-free lump sum, and pay off the mortgage, buy a new car or go on holiday, and then we take the rest as a flat income through a defined benefit scheme, annuity, or drawdown.


These patterns have endured for decades. The trouble is that the money you need in retirement doesn't always conform to an L or flat line pattern. Sometimes we're wrong-footed by a U-shaped need.

In these circumstances, we need the lump sum in the early days, to pay off the mortgage and settle the debts we have been carrying through our working career - and cannot afford to juggle on a fixed retirement income.

We are then fine to live with the consequences for some years, on a lower regular income. The trouble comes later in life, when we suddenly need to pay for our own care. This may be care in our home or in a residential home. The costs of care can be astronomical, and suddenly we need a huge lift in retirement income. Unfortunately in many cases, there's simply not the cash to fund it.

Patrick Connolly, a chartered financial adviser with Chase de Vere says that most people simply don't think of their care needs when they are planning their retirement: "Unless they are in poor health or they already know someone who is struggling with the cost of care."

In some cases they think of it, but decide on balance not to do anything about it. He says: "It's a difficult choice. Do you limit your income now just in case - knowing that you might not need the money and you have had a needlessly frugal retirement - or do you take the chance that you won't need care?"

If you take the chance, however, and need care that you cannot afford, you could end up paying the price by losing your family home.


One alternative, which has sprung up with the advent of pension freedoms, is a J-shared retirement income. This means starting with a relatively low pension income, possibly supplemented with paid work while you are relatively young and in good health. If you have debts to repay, you will need to do this not by taking the lump sum, but by working longer hours in retirement until you are on a firmer financial footing This will leave you enough in your pension to cover substantial care costs if needs be during retirement.

The other big advantage of J-shaped retirement is that if you don't end up needing this cash, then assuming it is still in your pension, it can be passed to your family tax-efficiently after your death.

But what do you think? What shape will your retirement income be - and will you take steps to protect yourself from a u-shaped retirement? Let us know in the comments.

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