More than two in five under-45s risk poor retirement


More than two in five workers under the age of 45 risk being left disappointed in retirement as they are underestimating how much money they will need to provide a decent income, new research has found.

Some 43 per cent of under-45s expect that a total pension pot of £100,000 will be enough to live on in retirement.

But this would only provide them with an annual income of just £5,400, or about £450 per month gross, on top of the state pension, according to analysis by Sanlam. 

The figure is calculated assuming a 65-year old single person buying a £100,000 annuity with a five-year guarantee. 

Not enough savings: Some 43 per cent of under-45s expect that a total pension pot of £100,000 will be enough

Not enough savings: Some 43 per cent of under-45s expect that a total pension pot of £100,000 will be enough

Not enough savings: Some 43 per cent of under-45s expect that a total pension pot of £100,000 will be enough

But if people want a ‘comfortable’ retirement with an income of about £2,000 a month, then their pension fund, including state pension, needs to be worth more than double – or £210,000, according to separate recent research by Which?

The calculation by Which? includes what you would get from the state pension and the remainder made up by taking out money each year from an income drawdown plan. 

However, many simply have not saved much, as research shows that one in three under-45s said they had a pot of just £10,000, while a quarter did not know how much they had.

This is not to say that people aren’t aware that they need to save more: more than half (57 per cent) admitted they would need to up their contributions if they were to meet their retirement goals. Yet, only 13 per cent think that is actually achievable. 

Some said they were able to ‘live in the now’ because they relied on their family leaving them some inheritance. 

A third of under-45s said they were putting off saving as they expect to receive an inheritance of more than £50,000 in fixed assets or money from their parents or grandparents, according to the report.     

Carl Drummond at Sanlam UK warned that relying on inheritance was a big gamble.

‘Money being passed down from parents or grandparents is often split-up among other family members or, increasingly, used to pay for care costs meaning the under-45s might not inherit what they expect,’ he added.

Not saving enough into a pension is not an exclusive issue of younger generations, according to the report. 

Among those aged 55 and over, one fifth don’t currently have any savings in their pensions and a further 22 per cent don’t know the current value of their workplace pension scheme.

Separate research highlights how, even if people manage to save enough for retirement, many miss out on bigger rewards because they steer clear of the stock market – especially women.

Fidelity found that those who invested in a stocks and shares Isa 15 years ago could have enjoyed gains of almost double that experienced by people leaving money in cash over the same period.

How much do you need to cover essential expenses in retirement? 

Read our guide to working this out, including a checklist of regular expenditure to fill in according to your own personal lifestyle. 

Women are much more likely to leave their savings in cash than men, who instead prefer to invest in a stocks and shares Isa.   

Maike Currie, investment director at Fidelity, said that meant many women may have had to wave goodbye to meeting long-term life goals like a comfortable retirement.  

‘Factors such as the gender pay gap, time off work to cover childcare and more women engaged in part-time work already contribute to a significant gap in women’s’ earnings versus their male counterparts. That’s why it’s important not to put yourself at a further disadvantage by not making your money work as hard as you are.

‘With interest rates at record lows for almost a decade now and inflation rapidly rising, anyone holding an investment in cash will struggle to achieve a decent real return – that’s a return that keeps abreast of rising prices.’  

The basic route to getting on top of your pension is to estimate roughly how much income you will need in old age, research how much you already have saved up in various places, and then try to make up any gaps, according to her blueprint. 

Here you can find a simple 10 step guide for a richer retirement.

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