9 out of 10 Brits have unrealistic expectations of how much they’ll need for retirement
Nine out of 10 Brits have idealistic expectations about how much they’ll need to see them through their retirement, according to a deVere survey.
The results of the poll were released only days after the World Economic Forum calculated that the pension savings gap in the UK will increase from £6 trillion to £25 trillion by 2050.
The three main reasons for these forecasts are increasing life expectancy, lower birth rates and insufficient savings for retirement.
When we first meet new clients we review their personal financial situation and their long-term goals, in particular their retirement ambitions and objectives. This will include at what age they’re planning to retire and how much they would require as their annual income.
The majority of people wish to retire at the default age, with a pension income of 75 per cent of their pre-retirement earnings, which is usually recommended by the pension industry.
That said, when we take an initial look at new clients’ circumstances, it starts to become worryingly evident that the overwhelming majority are not on course to reach their retirement ambitions. Indeed, 90 per cent of all new clients we’ve taken on so far this year, have had unrealistic expectations of how much they’ll need in retirement.
The ‘standard’ goal for most individuals is to stop working in their mid-60s, and enjoy a rewarding, financially-stable retirement. However, without the essential discipline required to allocate money whilst you’re working, retirement plans may, regrettably, need to be scaled down considerably.
Not saving enough to see you through your ‘golden years’ whilst you’re earning will likely result in you working into your 70s, or having to make a number of compromises when you reach retirement. Naturally, neither option is attractive for the majority.
Earlier in 2017, another one of our polls found that a ‘live for today’ mentality means that as many as eight in 10 workers are not saving sufficiently for their retirement.
When we carried out that survey, a mere 20 per cent of our new clients were saving enough for their old age, to enable them to retire at the age they want and accomplish their retirement goals.
What we’re seeing is that far too many people adopt this ‘live for today’ attitude. However, what happens when tomorrow does arrive? This ‘head in the sand’ mindset in regard to retirement is extremely alarming indeed.
We’re all living longer, which means retirement savings have to go further. Although, in the future it will be unlikely that governments will be in a position to support older people as they have done in past generations.
In addition, working longer may not be an option as you get older, perhaps due to poor health, a lack of career opportunities or having to care for sick or elderly relatives.
As such, there needs to be a fundamental shift in savings culture. And soon. If not, a large number of today’s workers will reach retirement and find themselves forced to downgrade their lifestyle and/or carry on working longer than they had anticipated.
However, whilst the WEF’s forecasts, coupled with the results of our latest survey, are undoubtedly concerning – in relation to the major shortfall in the amount of money people will have for their retirement – there are always well-established, practical measures that can be taken to resolve this. And, it is our job as financial advisers to help clients on the journey.