Just over a quarter of Britons are on track to reach their financial and lifestyle goals in retirement, new findings have warned.
Despite so few people being set financially for later life, 85 per cent claim to have a ‘fair to excellent’ understanding of pensions, according to a Schroders Personal Wealth survey.
The numbers would appear to indicate otherwise and having a genuine understanding of how you want to live in retirement is an important consideration for everyone, regardless of their age, particularly as for many the state pension will not be enough.
Have you got retirement sussed? Just over a quarter of Britons are on track to reach their financial and lifestyle goals in retirement, new findings have warned
On Tuesday, the Government unveiled plans to temporarily suspend the ‘triple lock’ formula for annual state pension increases.
Work and Pensions Secretary Therese Coffey said the average earnings component would be disregarded in the 2022-23 financial year.
Mark Campbell, head of advice proposition at Schroders Personal Wealth, said: ‘Our research highlights how few people are on track to reach their goal when it comes to retirement and shows the importance of not leaving it too late to plan for your future.
‘Whilst it’s encouraging to see that the majority of UK consumers are confident when it comes to understanding pensions, it’s concerning they aren’t on track to live the life they want to in retirement.’
Here, we outline five key ways to help ensure you are well prepared for later life.
1. Know how you will spend your time after retiring
Having a plan for what you want to do after you retire will help you gain an idea of how much money you may need to live on.
Being armed with a plan could also help ease the transition to a life without work.
Health permitting, around 65 per cent of people said they want to spend their retirement travelling more and learning new skills.
Half of people also plan to spend more time with family and loved ones once they retire, while only 12 per cent plan to buy their dream home, car or holiday home.
Try and factor in how much your travel plans or new hobby could cost a year before embarking on more in-depth pension planning.
2. Remember your retirement could be shared
This will not apply to everyone, but if you have a spouse or partner you will need to consider what your joint income needs will be when you retire.
Just over 40 per cent of people said they plan to retire gradually by reducing their working hours over a period of time.
A quarter said they would reduce their hours over a period of one to two years, while 19 per cent said they wind down their work over seven or more years.
‘Talk through your plans with your spouse or partner to make sure that you’re on the same page to avoid the potential for future money worries’, Schroders Personal Wealth, said.
3. Ensure your pension pot fits your planned lifestyle
Having a fair idea of how much money you will need to live your ideal retirement is important.
Over a quarter of people said they think they will need a pension pot of £300,000 or more to be able to live a comfortable life in retirement.
However, only 26 per cent of people think they are on track to achieve this £300,000-plus target.
Seventeen per cent admitted they did not know how much money they would need to sustain a decent living in retirement.
However, a recent survey by consumer group Which? suggests that retirees typically spend around £2,170 a month, or around £26,000 a year, per household.
Which? suggests you would need £41,000 a year ‘if you include luxuries such as long-haul trips and a new car every five years.’
4. Factor in all your money streams
Nearly half of people said their top concern for their retirement was their health. This was, however, closely followed by concerns about having enough money to last a lifetime.
Planning for later life can be daunting, but one way to make it simpler is by taking into consideration all your potential money streams.
Bring them together: Over 60% of Britons have two or more pension pots
For instance, you may receive state pension and money from private or workplace pensions.
You will also be able to factor in, if applicable, any money received via investments, like company shares or property. These can all add up to ensure you are able to enjoy a more comfortable retirement.
5. Consider having all your pensions in one place
At present, over 60 per cent of Britons have two or more pension pots, and over half said they thought bringing multiple pensions together was a good idea.
People often work for many different employers during their career, and may build up an array of different pension pots. You might also have personal pensions, especially if you have spent time self-employed.
Having multiple pension pots can made them more difficult to keep track of, and combining them could potentially save you money on management fees in the long term. It is also likely to be easier to draw your pension if it is all in one place.
However, before taking the plunge and combining your pension pots it is important to seek out professional financial advice to determine if it is the best course of action for your individual circumstances.
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