Most of us struggle to find the time to plan for life after work.
The Pensions and Lifetime Savings Association (PLSA) estimates that over 13 million workers are at high risk of failing to achieve an adequate retirement income. Most don’t even know how to find out how much income they’ll receive.
The PLSA has made a suggestion to help us keep plans on track. It has called for savings targets to be put in place to help people save enough. Retirement income targets are commonly in Australia, and can help by explaining how much must be saved to achieve various standards of living.
What is a good pension for retirement?
Research1 has shown that the average person in the UK thinks they will need an income of £29,700 a year when they retire. However, what they are not clear about is how to achieve this income and if it’s enough.
Whilst most people know that they should save regularly throughout their working lives, research shows most retirees wish they had saved more. Few are aware of how much they might need to live the life they want in retirement. The difficulty is that our needs are not linear through retirement, as lifestyle costs depend on health and how active we are.
As we change jobs more often, it’s also difficult to track different pensions across lots of schemes. The Government is working on a ‘dashboard’ solution that should go live in 2019, which should help to view all pension benefits including the State pension.
The edges between work and retirement are softening…
A ‘conventional’ retirement, where a scheme gives you an income forever from a set day, will be less common with the decline in new final salary pensions and a fast changing employment landscape. Attitudes on retirement are shifting and many are now looking at planning quite differently.
The pressures of rising living costs, low interest rates and economic uncertainty affecting investments can make it daunting.
Anyone reaching the age of 60 has a 50% chance of living to 90 or more, according to statistics in ‘The 100 Year Life’ by Professors Andrew Scott and Lynda Gratton.
As life expectancy is lengthening, money has to stretch much longer. While there is more pension flexibility, this adds complexity and risk into the mix. Some will plan to downsize their home to release equity, and others may be fortunate to receive additional capital from family inheritances to help.
What does a good retirement look like?
There is a lot to consider, and not just financially emotional aspects come into play. Many are disappointed by the reality of retirement and how it can change their life.
Long holidays and leisure might be fun for a while, but what are you going to do that is meaningful with all that free time? There is no longer a ‘normal retirement’ and the new approach is highly personalised for a balance between the life desired and the money to support it.
Some will have to work on for years after State Pension ages to support their family. Others will choose to work on because they enjoy working and need that purpose in life.
Planning is essential to make the most of that next stage, especially with the challenges we face in funding retirement. Sometimes it’s not always easy to see the future, but making a plan is the starting point for making good retirement decisions.
Need more advice?
To speak to one of our advisers about financial planning:
1One Family research Nov 2017
Shane Presley is a Chartered Financial Planner for Lloyd & Whyte (Financial Services) Ltd. It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding of taxation and can be subject to change in the future. It does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain.