It’s easy to push saving for your golden years to the back of your mind. Future events often feel very distant—until they arrive! It can be a hard thing to keep track of too; with no one checking up on your savings or guiding you along the way, putting a retirement plan in place can be a lonely experience.
The fact is, most of us are just not saving enough to enjoy a comparable lifestyle to our working days in retirement. A ‘retirement reality’ report from insurer Aviva shows that nearly 1 in 4 employees believe that retirement will be a financial struggle. There are plenty of genuine reasons why we don’t save enough—more current financial issues will logically take priority. You can’t save for tomorrow, for example, if it means forgoing your mortgage payments today. A lack of financial knowledge also plays a big part. 85% of young adults, when asked, revealed that they wish they had been educated more about finance management through their school and university years.
The Government’s workplace or auto-enrolment pension initiative has helped and there are around 1 million people saving for their retirement for the first time ever, as a result, but how do the numbers add up? The minimum auto-enrolment contribution rate is 5% of annual income, and in spite of more than half of workers thinking this is the recommended rate of saving, it’s far from enough! As a rule of thumb, if you wish to continue a similar lifestyle in retirement, a contribution equal to 13% of your annual income is required. Some of this shortfall can be made up by employer’s pension contributions, but we’re still looking at a big gap between actual savings and those that are needed.
Asset Manager, Fidelity, has developed a system it calls the ‘Power of Seven’, made up of a number of savings goals. Ultimately, it suggests that to comfortably retire at 68, you should have saved the equivalent of 7 times your annual household income. So if you were to retire with a household income of £100,000, you’d want a pension pot saved of £700,000. Obviously, the precise figures will differ from person to person, so it’s recommended you speak with a financial planner to understand your personal situation and help you answer one of life’s really big financial questions—what’s my number?
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. Workplace Pensions are regulated by The Pensions Regulator.
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