When you think of retirement, how do you imagine spending yours? Do you envision it to be the time of your life when you get to travel the world, take a cruise or two and generally live out your days in paradise? Or do you dream of spending time with family, helping to raise your grandchildren and taking trips with friends? Whatever your retirement dreams are, you’ll need money to afford them as well as to continue to pay household expenses.
In this article we will be discussing what your expectations are for your retirement versus the reality and how you can minimise this gap.
Out With the Old
Our grandparents’ generation were offered a generous state pension and had it instilled into them to save for their retirement from a young age. This careful saving and state pension has afforded these ‘golden oldies’ the ability to splash out during their retirement and spoil their families. When it comes to us retiring, however, the days of finishing work at the age of 60 will be long gone and possibly with them, a state pension that we can rely on to get us through.
Surprisingly though, research carried out by True Potential discovered that 32% of you are very confident that there will still be a state pension by the time you come to retire and 27% of you are quite confident that by the time you retire, you will have saved enough to enable you to live comfortably. This data is at odds with government views that are predicting a much gloomier state of affairs. To combat this, they have begun to roll out schemes that drive us to start saving for our own retirement, such as Auto Enrolment and the Lifetime ISA. Could this mean that we’re in a state of denial or that we have false aspirations due to witnessing how the generations before us have lived?
Amongst the optimists, there are those with have a different view as 28% of you have stated that you are not confident that you will have saved enough for retirement. This shows that our views of how we imagine our retirement to play out are conflicting, a problem which only supports our research into what we have named, ‘Tackling the Savings Gap’.
Tackling the Savings Gap
The ‘Savings Gap’ is a term mastered by True Potential to indicate the difference between how much we think we need to save for retirement versus the reality. Recent polling shows that an income of £23,000 is needed annually in retirement to live comfortably. However, based on actual savings behaviour, people in the UK are on course to receive an income of just £6,000 per year from their pension fund. This is a massive difference and one that certainly needs addressing.
We believe that one of the key reasons we have this ‘Savings Gap’ is because of a lack of financial education. Many people aren’t taught about this in schools, leading to confusion for this generation’s next cohort of retirees. With this in mind, we have partnered with the Open University to launch three free personal finance courses to begin the journey of bridging this Savings Gap. This is only the first step, but one that we should all be taking if we hope to spend our retirement as we have planned.
Reaching Your Goal
How much you need to save for retirement depends on what you can afford, how many years you have to save and what your needs will be when you come to retire. However, experts have suggested that in order to live comfortably, we’ll need at least two thirds of our current income. With improving health and an increasingly ageing population, it’s best to bear in mind that you could be in retirement for 20 to 30 years, so the amount you save may need to cover a long period of time.
There are a number of ways that you can fund your retirement, but the two key ways are through starting a personal pension and opening an ISA. With the introduction of Auto Enrolment, you will start to pay into a workplace pension through your employer deducting both theirs and your contributions before you receive your pay. This is a great concept as it doesn’t require you to physically do anything or choose a provider as it is all done for you. In fact over six million people have been auto enrolled since it began in 2012, which proves that it is a popular route to take.
The Lifetime ISA was introduced by the Government based on the current popularity of ISAs as a way of saving for retirement. The attraction to ISAs over pensions is that you can withdraw the money you invest at any given time if you find that you need access to these savings before you reach retirement age.
No matter how you decide to invest for your future, if you want to live your retirement dreams, you may benefit from beginning your investment journey today. The earlier you start saving, the more money you will have come retirement.Open a personal pension
Open a stocks and shares ISA