If you're approaching retirement age, you've probably got an idea of what post-work life will be like. But, whether it's set to involve plenty of holidays, new hobbies or just a bit of rest and relaxation, you'll still need the necessary funds to achieve those goals – are you on target?
According to Aegon, a large number of you probably aren't. Their second UK Readiness Report shows that just 6% of respondents are on track for the retirement they want – down from the 7% who said the same in April – despite the pension reforms offering retirees more flexibility in how they can spend their pot, suggesting that the majority could be falling far short of their expectations.
However, that could simply be because those expectations are rising to unrealistic levels, as those surveyed wanted an average of £41,000 per year in retirement – a clear increase from the £35,000 annual goal cited in April. Given that most people estimate they'll have a guaranteed income of £18,000 per year, they could be facing a shortfall of £23,000.
But that's not necessarily disastrous. Just because people have high expectations it doesn't automatically mean they won't be able to reach their goals, as in reality, they could need far less than they think. The new flexibilities announced in this year's Budget offer more potential for financial freedom, giving retirees the chance to choose how they secure an income. This perhaps explains why 32% are more positive about pensions following the Budget, while just 4% believe that the changes are for the worse, highlighting the increased potential that the reforms could bring.
David Macmillan, managing director at Aegon, commented:
"The Chancellor radically changed the way people will be able to access their pension with his Budget announcements. These changes will give people far more flexibility over how they access their savings and have generally been seen as a boost for pensions. It's possible, however, that the positive news has increased people's expectations about what they can expect to receive in retirement, when in actual fact the main factor that will determine their income in retirement will be how much they save each month."
Such high expectations could make it feel almost impossible to achieve them, but happily, even if you don't think you're on track just yet, there are ways to boost your chances of getting there – and it all comes down to proper financial management. Here are a few tips that could help you reach your goals.
The survey found that people's financial awareness and knowledge of pensions is still relatively low, as only 30% knew the value of the current maximum state pension (£113.10 per week), while 31% over-estimated the figure. Given that the state pension will make up a large proportion of many people's retirement income, it's important to educate yourself so you understand just how much you could get – and hopefully so you realise that there'll be more you need to do if you want to reach your income expectations. You'll want to familiarise yourself with the reforms set to grace the market, too, giving you a decent understanding of the best way to secure an income.
The figures also warned that very few people demonstrate the behaviours that could help them maximise their savings pot, with 53% of people admitting they've never checked the performance of their retirement savings. This is crucial, as if you're not getting a decent return from your savings, your chances of securing a suitable retirement income begin to falter. Furthermore, only 17% said they had reviewed their retirement plans in the last six months, and just 11% manage their pension online.
This is something that clearly needs to be addressed, as not being proactive could make it far less likely that you'll achieve your goals. You should review the performance of your savings on a regular basis to ensure you're getting the best returns, and regularly look at your retirement plans so you're confident you're on track. Ideally, you'll also want to check the performance of your pension fund. This could take further understanding and probably the advice of a professional, but it could be a great way to maximise your chances of achieving your goals.
If you haven't already, you'll want to start thinking about how much you could put away each month – and that figure needs to be as high as possible, even if it means changing your spending habits. Contributing to a workplace pension should be high on the list of priorities as you'll benefit from employer contributions as well as Government tax relief, but you'll also want to make the most of ISAs.
Happily, the amount people are saving in ISAs has increased of late, rising from an average of £8,200 in April to £12,700 today. This would indicate that people are trying to make the most of the new increased £15,000 ISA limit, and given the tax-efficiency of such accounts, it's high time you got in on the action. Even saving little and often can soon add up, and if you view it as a necessary outgoing, it'll get you into the rhythm of saving regularly so it becomes habitual – and resist the temptation to dip in unnecessarily.
Proper financial planning is the cornerstone to a happy, financially secure retirement, and that's why it's so important to get the advice you need. Speak to a professional adviser throughout your career to ensure your savings are working as hard as possible, and if you're approaching retirement, it's time to seriously consider your options (our no obligation annuity service could be a great place to start).
Ultimately, it's important to be realistic. There's a clear disparity between the amount of money people want in retirement and what they're likely to get, which could lead to many feeling like they're suffering a shortfall in retirement. That's why it's so important to be realistic in your goals – no matter how much you may want that £50K income, it may not be that easy to achieve.
However, if that's something you absolutely must have, and you've got the time to achieve it, make sure to do everything you can to close the gap between the savings you have and the income you want. This can't be overstated enough – additional figures show that 47% of people don't make regular contributions to a pension scheme, while 27% save less than £100 a month, and if you're one of them your dream of retirement will be far from the reality. So, start saving as much as you can from as early as possible, utilising all possible savings vehicles, and you could be one step closer to achieving your goals.
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