Do you really need £260,000 to survive retirement?
It’s an age-old question, a question I hear a lot as an advisor and a question that’s probably on your mind right now. How much do you really need to secure your golden years without worrying about money? As it so happens, British citizens will now need at least £260,000 stashed away for their retirement and experts claim that renting millennials will need to set aside almost double that amount!
It sounds intimidating, doesn’t it? The savings you need just to fund the basic requirements for getting by in your old age now stand at over a quarter of a million pounds. How did we get here and is it really an accurate estimation of what retirement standards currently look like?
The findings were reported in a new research paper by insurer Royal London, which provided this estimation for what we’ll need to save on top of the full state pension. The figure takes into account spending changes like reduced travel costs due to the fact that there will no longer be any commuting to work. What’s more, plummeting interest rates and an increased life expectancy has pushed the numbers up by more than £100,000 since 2002. It’s an alarming rate that indicates a dire need to increase inadequate old age savings.
The worst part of it all is that most of us are nowhere close to achieving this new milestone in savings. Another series of findings from research by LV= suggested that 45-54-year-olds are managing to build up an average of only £71,340 with women having saved an average of only £56,000 compared to £112,000 among men.
While the intention of saving to the best of our abilities is a good one, it’s also plagued by a growing sense of complacency that threatens the way we look at saving for the future. Approximately half of the UK adult population is thought to have enough savings to favourably compare pre- and post-retirement life but for the rest, savings rates have been stalled due to an assumption that meeting the minimum requirement with regards to automatic contribution is enough. Furthermore, a lack of information about exactly how much their total pot should be worth could put their prospects for retirement in danger.
Progress may be taking place gradually but if there isn’t a quick nudge for people who need to learn about more realistic savings levels, millions of people could face a harrowing drop in living standards when it comes time for them to retire.
Picking up the pieces
If this is what the middle-aged have to deal with, I genuinely fear for the younger generation and what they will be going through in terms of saving standards. Millennials make up a large part of the millions affected by these rising estimates. In fact, they are facing a host of financial circumstances that already place them a step behind when compared to the older generation.
Recently a leading think tank called the Resolution Foundation, conducted a major study which indicated that this generation of young people may never own their own homes. With 40 per cent of millennials now renting in their thirties, a portion larger than their predecessors, it seems that property opportunities may be far out of reach for many. This results in a drastic shift in their financial stability that could last them the rest of their lives.
The Resolution Foundation report concluded that "…a rising share of retiree renters, coupled with an ageing population, could more than double the housing benefit bill for pensioners from £6.3 billion today to £16 billion by 2060 - highlighting how everyone ultimately pays for failing to tackle Britain's housing crisis."
While the majority of homeowners will likely finish paying off their mortgage, millennials that rent in retirement are in danger. Royal London’s figures suggest that those still renting after retirement may have to deal with housing costs that increase in amount, ultimately adding up to an impossible £445,000 in order to accommodate the lifestyle of a typical £27,000 a year worker.
In an era of longer life expectancy and lower interest rates, much bigger pots are needed to fill the growing void for retirement savings. Now’s not the time to become complacent about where you stand. Instead, it’s better to stay on your toes and remain alert if effective solutions are to be reached.
Solutions to this
A good investment and savings fund would help in making the purchase of a house possible, paying for the education of the kids, or even a comfortable retirement that could very well include a little trip to your dream destination. Let me know if you need some insights into how to manage your funds and expenses and we could explore the possibilities of what you could achieve with them.