We all know that we should be saving towards our pension, yet unfortunately, this can often get pushed down the to-do list. Other financial commitments can easily take precedence, particularly during prime pension saving years, which means many of us end up procrastinating and fail to plan sufficiently. Don't be one of them!
Heading for disaster
While often thought it's the younger generation that puts off planning for the future, new research from YouGov and Old Mutual Wealth reveals a worrying lack of pension planning among 30-45 year-olds, too, with 90% of those surveyed having yet to begin planning how they'll fund their retirement.
This is despite the fact that 94% acknowledged a need to put a financial plan in place for retirement, with only 6% saying they never expect to have one. However, many people delay financial planning due to other commitments (by an average of eight years), which means the average age at which people felt they would start planning was 45 – just 20 years before many hope to retire.
Leaving things so late could be a recipe for disaster, as trying to make up a savings gap when approaching retirement can be challenging; the report found that saving smaller monthly amounts over a longer period resulted in a far higher pension pot at retirement.
For example, someone who aimed to save £100,000 (including employer contributions and tax relief) over 30 years and retired in August 2016 would only have needed to save £277.78 per month, yet thanks to compound interest, they'd have built up a total pension pot of £393,067.74 by the end of the 30-year period.
Conversely, someone who started saving 15 years ago would have needed to put aside £555.56 per month to save the full £100,000, yet the far lower investment time means the pot would only be worth £135,830.28 at retirement.
The report warns that members of so-called Generation X are at an acute risk of under-saving for retirement, and unless the problem is solved, those set to retire in years to come face being far less well off – with dramatically reduced incomes – than earlier generations.
"For Generation X, retirement planning is on the 'to-do' list for most, but there is a worrying tendency to procrastinate and never get round to it," said Old Mutual Wealth chief executive Paul Feeney. "Many people want to delay pension saving and leave it for another day. It is easy to see why: between childcare costs, school fees, travel costs, holidays, repaying the mortgage and all the other costs we face in our 30s and 40s, it can feel that there is simply no money left to save at the end of the month.
"Instead, people hope that tomorrow will be better and it will be possible to make up the difference. Unfortunately, that might not be possible for many, and trying to rapidly top-up your pension after years of under-saving is likely to end up more expensive over the long-term."
What can you do?
If you don't want to run the risk of facing a meagre income in retirement, start saving as much as possible from as early as you can. Happily, the success of automatic enrolment means that more and more people are saving into a workplace pension, but bear in mind that minimum contributions may not be enough – if you can, it could be worth upping your monthly contribution level to stand a better chance of meeting your retirement income needs.
Paul agrees: "The best thing to do is start planning as early as possible. Think about what kind of income you want in order to achieve your desired standard of living, and then work backwards by projecting how much you'll need to save in order to reach that target. It may feel painful to start putting money aside in your 20s and 30s that you won't access for decades, but putting a little extra aside is likely to yield a much happier retirement."
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