Imagine your idea of the perfect retirement. Are you on track to achieve it? Unfortunately, research suggests that very few will be, with unrealistic retirement expectations being a major concern.
The research, carried out by Aegon UK, found that just 7% of those surveyed are on track to achieve the retirement they want, a figure that's unchanged from a year ago. Nearly two-thirds (62%) don't feel that they can retire when they want to, leaving just 38% confident about being able to retire at their target age.
The figures also suggest a clear lack of engagement when it comes to individual pension saving, despite widespread reforms that mean millions of people have been auto-enrolled into a workplace pension. Worryingly, 55% have never checked the performance of their pension savings, 41% are unaware of how much they're paying into their pension pot, and over half have no idea how much they've saved into a pension so far. A further 59% don't know how much their employer is contributing, and 35% don't even know whether they're eligible for auto-enrolment.
All of these things could have huge implications for the eventual level of income that can be achieved, because if you don't know how big your pension pot is, how do you know if you're on track to achieve your goals? This perhaps explains why so few feel confident about being able to retire when they want, and why even less think they're on track to achieve their ideal retirement income.
Unfortunately, much of this could be down to pre-retirees having wildly unrealistic expectations when it comes to both when they want to retire and the amount they hope to live on. According to Aegon's latest UK Readiness Report, the average age at which people want to retire is 63 – two years ahead of current state pension age – and they hope to have a retirement income of £42,000.
Not only is this a sharp increase from last year's average expected income of £35,000, but it also highlights a worrying lack of understanding of pensions legislation. Retiring on an income of £42,000 per year would require a pension pot in excess of £1m, a sum higher than the new pension lifetime allowance, which will come into effect next year (currently, the limit stands at £1.25m).
"It is deeply worrying that as a nation we're still failing to prepare for our futures, despite the big changes made to pensions in recent years," said David Beattie of Aegon UK Direct. "There's a huge disconnect between the amount people have saved and the income they want in retirement. Most people want an income which would require more than £1m of savings. How close are they to that? With the lifetime allowance due to fall to £1m, unless individuals also have substantial non-pension savings or defined benefit pensions, £42,000 isn't just unrealistic – it's more than the Government will allow!"
So, just what can you do to achieve your goals? The key is to be prepared – and boost your knowledge! It's important to understand your pension and to fully engage with it (read our retirement guides to find out more), and it's vital to make sure you save as much as possible. Achieving an income of £42,000 per year may be unrealistic using a pension alone, but if you're committed to saving in other vehicles, you never know what you could achieve.
Opting for a combination of workplace pension saving and putting additional money into an ISA, savings account, stocks & shares ISA or even a high interest current account could be ideal – anything you can do to boost your pot will be worth it. You'll need to regularly check the performance of your savings as well, thereby ensuring you're on the right track, and if you put the effort in, hopefully you'll be closer to achieving your retirement goals.
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