Many reckon they can have a comfortable retirement on as little as £10,000 a year, but in practice they need far more than that. Unless they save more in a workplace or personal pension, retirement will be tough.
Failing to save into a pension at an early age is one of our biggest financial regrets, with two thirds of over 50s wishing they had invested more when they were younger.
More than one in four did not contribute towards their pension until after they turned 30, and may struggle in retirement as a result.
Raising children, paying off mortgages and enjoying leisure time took priority instead, according to new research from insurer Aviva.
The cost of living crisis is now set to make pension saving even harder, as people have even less cash to spare.
Another danger is that many underestimate how much income they need in retirement, reckoning that between £10,000 and £20,000 is sufficient to be “comfortable”.
Yet that is nowhere near enough.
A retirement income of £10,900 a year will only buy a single person the most “basic” living standard, according to the UK Retirement Living Standards survey.
Couples needs combined income of £16,700 to get by, but this will barely keep them above the breadline.
A single person needs £20,800 a year for a “moderate” retirement living standard, rising to £36,000 for a couple.
To enjoy a “comfortable” retirement, a single person needs income of £33,600 a year, while a couple will need to generate £49,700.
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The UK Retirement Living Standards survey was carried out last year, before the cost of living rocketed, so pensioners need even more income today.
Saving between £10,000 to £20,000 a year is likely to leave them well short of a happy and comfortable retirement.
Many workers reckon that saving five percent of their salary will into a pension will be “appropriate and achievable”, but Alistair McQueen, head of savings and retirement at Aviva, said the target should be at least 12 percent of salary.
Everyone needs to be practical and plan ahead, he added. “Life in your 20s and 30s can often take over, with children to raise, debts to pay and holidays to be enjoyed. It could lead to major regrets later.”
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Pensions are more important than ever before, McQueen said. “The workplace automatic enrolment scheme has brought pension savings to millions, but this was only introduced a decade ago and for many, especially those over the age of 50, it is perhaps too little, too late.”
He said it is important to take stock of your financial situation early. “You may not think you have enough spare cash, or that you have years until you retire, but as our survey shows, most over 50s wished they had paid more into their pension pot sooner.”
Future generations may need more than they realise in retirement because more of us will continue to pay rent or have unpaid mortgages after we finish working.
McQueen added: “To avoid sleepwalking into retirement it’s important to understand how much you have in your pension, what that money might look like as retirement income and how long you might need that money to last.”
He urged people to take financial advice or seek help from the government-funded MoneyHelper and Pension Wise guidance services. Aviva’s mid-life MOT app gives those aged 45 and older a free online work, wealth and wellbeing check.
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