If you're young, you may not have thought too much about what retirement holds, or how you'll save into a pension to fund it. You're focusing too much on the here and now, and after all, retirement is decades away. But, thoughts like that could mean you don't start saving as early as you should, and that could lead to you not having as comfortable a retirement as you'd want.
Research from Aegon UK has revealed that young people are drastically underprepared when it comes to saving for a pension, and even those that have thought about retirement are hugely unrealistic when it comes to their pension goals.
According to the survey, those aged 16 to 24 are hoping to retire with an average annual income of £64,000 a year – a significant sum for those still working, let alone in their post-work years, and nearly six times the average income they're actually on track for. Not only that, but an income of that kind would require a savings pot of nearly £1.9million, a sum far greater than the pension lifetime allowance and one that would be difficult to achieve for even the most prudent of savers.
Aegon's calculations show that, if a 20-year-old hoped to have that kind of income when they retired at age 68 (the current expected pension age), they'd need to save £500 per month – and that's assuming you'd be able to get a 5% return on your investment. If they wanted to retire earlier (the survey found that 16-24 year-olds hoped to retire at 63), they'd need to put away even more, an average of £800 per month.
But, despite these grand expectations, 59% of this age group don't contribute any money to their pension pot at all, showing that reality really doesn't match up.
Even though they're hoping for the highest retirement income of any age group – expectations begin to tail off and get slightly more realistic with age, with those aged 55 to 64 hoping to have an annual income of £30,000 in retirement – they're the least engaged. In fact, 70% have never done anything to review or affect their plans for retirement, while 54% don't even know whether they're eligible to be enrolled into a company pension.
"The findings don't paint a pretty picture for the UK's younger savers," said David Beattie, managing director at Aegon UK Direct. "Unrealistic expectations both in retirement income and early retirement age mean that this age bracket is set to fall well short of the retirement income they want.
"However, we must remember that younger people have different financial priorities, such as saving for a deposit on a house or paying off student debt, and this can mean putting money aside for a pension doesn't top the list. What this age group has on their side is time, but it is important this doesn't lead to complacency. The earlier people start saving, the more their money is likely to do for them in return."
Engaging with your pension from a younger age can make all the difference, and means it's more likely that you'll be able to have the retirement you want. Signing up for a company pension is a vital starting point for anyone who hopes for a comfortable retirement, and with auto-enrolment well underway, it's never been easier to get involved.
While putting away £800 per month is probably too much for most people – you've got shorter-term savings goals and day-to-day life to contend with, after all – putting aside as much as you can should be the first step, and even little and often can soon add up. Hopefully, it'll mean your expectations aren't quite as unrealistic as initially thought.
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