Our latest Quarterly Consumer Report has found that many people are generally clueless about how much money they need for a comfortable life in retirement. Do you think you’ll have enough when you retire?
The word ‘pension’ should be a positive thing – it should signify your ability to squirrel away your earnings to live a comfortable life in retirement. It represents your commitment to prudence and planning, and reflects the wealth that you’ve managed to accumulate throughout your working life.
Unfortunately, that seven letter word appears to be the cause of distress, concern and out-right confusion amongst many. Our latest Quarterly Consumer Report paints a gloomy picture of people’s attitudes and engagement with saving for their later years.
The growing problem with pensions
We revealed a ticking time bomb of people who are not saving for their retirement, with half of people still not paying in to a pension and more than a third saying they have no intention of doing so in the near future.
Just over two in five say that they can’t afford to save, while 8% said they just hadn’t got around to it yet. And while the majority of people we spoke to believe they’ll be comfortable in retirement, their perception of the level of income they’d need to deliver that standard of living appears to be out of sync.
The average amount of money people think they’d need to live off when they retire is £375.30 per week (or £19,500 a year). Assuming they expect to receive the basic state pension (at the new enhanced rate of £144 a week), people think they’ll need around £13,800 on top of the state pension to live comfortably. This would equate to a pension pot of around £255,000 on a fixed annuity, or £370,000 on an index-linked annuity.
A shock in store for retirees
But 57% of people didn’t know what size of pension pot they’d need to generate this level of income. On top of this, our report found that many people simply didn’t know how much money they’d get per year from a set pension pot. Four in ten believed they could comfortably live on a £100,000 pension pot, which would give them only £5,500 a year from a fixed annuity or £3,500 from an index-linked annuity – thousands less than the £13,800 they think they’d need.
As our report concludes – many people will face a nasty shock when they realise how much money they’ll have to live on in retirement. Do you feel well prepared for your own retirement? Do you feel you understand how much money you’d need to save into a pension to live comfortably when you retire?