40% of over 40s don’t even know the basic cost of retirement, according to recent research from a major investment provider.
The findings from Saga Investment Services suggest that despite the increase in pension freedoms, 80% of people stated that they had no idea how big they would need their pension pot total to be in order to fund retirement.
In order for people to maintain their lifestyle post retirement, experts advise that they would need two thirds of the income earned whilst working.
Despite some individuals having a good understanding of yearly lifestyle costs, the challenge was translating this cost into pension pot size terms, with underestimation reaching 50%. One tenth of those asked believe a basic lifestyle could be afforded on a pension pot of £25,000, paying a yearly sum of £987. On average however, people believed you could afford this with a £126,000 pot, in reality giving out just £6,904 per year. These figures indicate the gap between people’s ambition and the reality that they face. The largest leap needs to be made by those in the North East who believe that a basic retirement could be obtained with a pot of just £74,000.
On average, people believed a comfortable retirement could be afforded on a pension pot of £244,000, whereas in reality this would only entitle them to a yearly income of £13,300. However, eight out of ten respondents stated they did know the size of the pension pot they would need in order to obtain a comfortable retirement.
On the whole, £500,000 was the amount people believed would afford them a luxury retirement lifestyle, although this would pay an annual £27,000 in reality. This is 2/3 below the amount of real income required to achieve an extravagant retirement.
Commenting on the research was Sally Merritt. The head of product at Saga Investment Services highlighted the need for pension guidance to be available in order for people to invest in a way that will adequately prepare them for retirement.
“The research proves just how desperately affordable advice and guidance is needed and we urge the regulator to address this. It is a real concern that people in their 40s and beyond are so unaware of what they need in their pension pot to give them the lifestyle they want in retirement. People are in danger of becoming pothole pensioners, who face a bumpy road ahead because they didn’t invest well enough when they had the opportunity.
This could well be because people underestimate how long they are going to live in retirement, or that they simply don’t understand what sort of income a typical pension pot can generate. Our survey demonstrates how important it is for people to take the time to think about their savings and investments as early as possible to give them time to put a little more away if they think they are not going to have as much as they need.
But the task need not be as daunting as people think, in just half an hour on a computer with the right paper work in front of them our free, personalised Look Ahead report can give people an accurate view of where they are with their retirement finance planning and make suggestions as to what else they might consider in order to achieve their goal.”
