A recent Standard Life Aberdeen survey of people retiring in 2021 indicated that two thirds (66 %) of them would exhaust their pension savings before they die, based on the average they planned to spend in retirement per year vs the amount of savings they had put in place.
The cohort, identified as spending on average £29,000 per year now, indicated that they planned to spend on average £21,000 per year in retirement. Based on a 30 year projection of life expectancy, this would require them too have accumulated savings of £390,000 at minimum on top of their state pension entitlements. The average actually saved was around £366,000, with a third admitting they had less than £100,000 saved.
Time and again we see people who have failed to seriously think about how they will maintain the lifestyle they desire in retirement. Many factors play a part in this, including a simple lack of desire to think about ageing and mortality, a misconception of how pensions work, and an increasing trend for people to simply assume they can work longer.
But life seldom runs according to a strict plan, and many of those looking to retire in 2021 are doing so earlier than they had intended, due to the impact a global pandemic and a badly fluctuating economy have had on their career prospects. One in ten of them are intending to sell their home and/or downsize in order to try to fund their retirement plans. Having worked their entire lives, they are now looking at many compromises just in order to be able to fund the basic, bare minimum level of comfort as they finally retire.
What can this teach those looking to retire in the future? First of all, always have a realistic idea of what’s required. The earlier you sit down and plan out exactly what sort of life you want to have when you finish working, the earlier you’ll have an idea of how much that will cost, and the better chance you’ll have of reaching that funding target.
Don’t rely on your state pension to ‘tide you over’. Don’t make the mistake of assuming you’ll be able to simply work longer or downsize your home when the time comes. The economy fluctuates in big and small ways constantly, and if you happen to reach the standard retirement age at a time of recession, or as now, a pandemic, you may find that working longer is not an option, and selling your home is harder, impossible, or simply won’t yield the necessary returns.
Your future is the most important thing you can ever plan for – why leave it to chance? SF