A staggering £280,000 is the suggested savings requirement for those hoping to retire early at 55 and enjoy a “moderately” comfortable retirement, calculations from interactive investor shows. The firm is now calling on the Government to “consider proposals” to make it easier for older workers to save up.
Speaking on Bloomberg TV earlier today (March 7), Catherine Mann, a member of the Monetary Policy Committee of the Bank of England, said it is “a challenge” to retire at 55 and make sure retirement savings match longevity.
Ms Man predicted that some of these early retirees will end up looking for work again, while there is an indication some are already looking for part-time positions. She said: “I worry that a couple of years down the line, we’re going to see people trying to come back into the labour force, and that’s going to be much more difficult.
“It’s early on that and as I say, I worry that people are going to find that their pensions are not sufficient for their preferred lifestyle and are going to want to come back.”
Agreeing with the sentiment, Alice Guy, head of pensions and savings at interactive investor, said: “Saving enough for retirement is a mammoth undertaking and often takes years of hard work and dedication.
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“Retiring early and plugging the gap until the state pension kicks in is tall order – it’s a double whammy because not only are you earning for less time, but you also need to dip into your pension pot for longer, depleting it more quickly.”
According to Interactive investor’s calculations based on the PLSA retirement living standards (RLS), a person wanting to retire at 55 would need an extra £140,000 for a basic retirement.
Someone would need an extra £280,000 for a moderate retirement, while those looking for a comfortable retirement would need an extra £460,000.
According to interactive investor experts, the figures are high because the state pension, soon to be £10,600 per year, forms a big part of most people’s retirement income. Those who retire early will have to fill an even bigger hole.
Ms Guy said: “The PLSA calculates that we need around £12,858 for a basic no-frills retirement, and that figure also assumes you’ve completely cleared your mortgage. For renters or mortgage holders that figure will be a lot higher.”
However, she pointed out: “Of course, many people may have to retire earlier than planned due to redundancy, ill health or caring responsibilities. They don’t always have time to save extra for retirement and may therefore struggle along with a very low income.”
This data is even more concerning as, based on recent Department for Work and Pensions (DWP) figures released in the analysis of future retirement incomes, 66 percent of those retiring in the 2030s with a defined contribution pension are thought to be “undersaving”.
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The analysis shows 34 percent of people in the lowest earnings band are projected to not meet the PLSA Minimum RLS, compared with only three percent in the top earnings band.
Ms Guy said: “With so many older workers struggling to save enough, it’s important that the Government considers proposals to make it easier for older workers to save for retirement.
“Raising the punitive £4,000 money purchase annual allowance to £10,000 would help older workers. It would mean that people who return to the workplace after taking taxable income from their pensions can still contribute up to £10,000 into their pension pot.”
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