No matter how much we enjoy our working lives, retirement has always been something to look forward to. From travelling the world to living comfortably and being able to treat the grandchildren, whatever retirement means to you, it is unquestionably a time of life that we should be able to fully enjoy.
However, several factors are currently putting a lot of pressure on our pension pots, meaning that the dream of a ‘comfortable retirement’ is proving increasingly harder to achieve. Despite this, shocking statistics from the Money Advice Service reveal that more than half of people in the UK either aren’t saving at all for their retirement, or they aren’t saving nearly enough to give them the standard of living they desire.
Here, we look at five key reasons why you need to get your saving act together as soon as possible:
1. Retirement could last longer than you think
Although increased life expectancy is a perk of modern life, many of us do not realise the implication this has for our pension pots. According to statistics from the ONS, the average life expectancy at age 65 years in the UK is another 18.6 years for men and 20.9 years for women – that’s a long period of time for our saving pots to support us over! Instead of focusing on one big retirement perk, such as a luxury holiday, it’s important to think about how you want your day-to-day life to look, as we face the prospect of possibly living well into our eighties – and beyond.
2. The State Pension may only cover basic needs
Although most of us will receive a State Pension, we have to be realistic about what this will cover. For those reliant on state support, the question might not be how to retire successfully, but how to retire at all. It is vital, therefore, that we take personal responsibility for our own retirement finances. In addition to this, the Government is proceeding with an accelerated increase in the State Pension age. From 2020, it will be 66 for men and women, increasing to 67 between 2026 and 2028, and then linked to life expectancy after that. The Office for Budget Responsibility has warned that many of those who are working today might not be eligible for a State Pension until they are 70.
3. You might have misjudged how far your savings will stretch
There is little awareness about how much retirement income a savings pot can translate into. On average, Britons believe that a pot of £233,000 will be enough for their desired retirement income of £26,000 a year. But research suggests that they need to save at least £525,000 for this income, even with the State Pension (source: BlackRock, Investor Pulse Survey, 2017). This uncomfortable realisation about how far a pension pot will go is evident in a recent study by Aviva, which found that 63% of over-50s in employment are now planning to retire later than they thought they would 10 years ago: 38% of which say it is because they have insufficient pension savings.
4. It can be hard to catch up
When it comes to future planning, the sooner you start to save, the better. This way, the more time you have to benefit from compound interest, which enhances the value of your savings due to a snowball effect. It’s worth saving each pound you have now to take advantage of the benefits you gain later – it will give you far more freedom and control over your lifestyle down the road.
5. The burden of saving has shifted
More of the burden of saving has moved from employers to employees, meaning that the majority of today’s workers are now solely responsible for making their own financial provision for retirement. In the face of rising life expectancy and spiralling costs, the trend has been for employers to wind up their defined benefit (final salary) schemes in favour of their less costly, and in many cases, less favourable defined contribution counterparts.
The time is now
As we have seen, saving for retirement has never been so important. It’s imperative that we start saving to help fund a comfortable old age – without a long-term financial plan, we run the risk of outliving our savings. Many experts warn that the end of defined benefit pension schemes, chronic under-funding of defined contribution pensions, and increasing life expectancy are creating a perfect storm that threatens to destabilise the financial wellbeing of millions of future retirees. Put simply: a comfortable retirement can only be assured if we take the right steps to save enough money.
For more information
If you have a question about retirement planning or would like more information about our services, please contact Wellesley Wealth Advisory on 01444 848508 or via email at firstname.lastname@example.org.