Everyone hopes that they'll have a comfortable retirement, free to enjoy their golden years after their hard work has paid off in the form of a decent pension.
However, using official figures, MGM Advantage has calculated that the majority of retirees may not be able to enjoy the standard of living they'd hoped, with the average pension pot falling short by some £100,000.
Currently, according to ONS statistics, the average income prior to retirement is £33,288. The ideal retirement income is thought to be two-thirds of that previous salary, meaning the average retiree should be aiming for around £21,970 per year. However, the current average is a mere £16,016, giving a shortfall of £5,954 per year.
This means the average retiree would need an extra £100,000 in their pension pot to plug the gap, or perhaps even more – this figure only applies to those who buy a standard annuity, with the figure rising to £200,000 if they wanted their income to rise with inflation and provide for their spouse. It doesn't take into account people taking tax-free cash from their pension either, which means the shortfall – and the pot required – could well be even larger.
It's a significant shortfall, as Andrew Tully, of MGM Advantage, commented: "These figures show the true scale of the problem facing people approaching retirement. There is a chasm between savings and the 'ideal' retirement income, which should serve as a wake-up call for many people. The scale of the challenge becomes even scarier if you want your retirement income to keep pace with the cost of living and provide for your spouse.
However, despite the challenge, there are things you can do if you want to go some way to plugging the gap. Delaying retirement could be one option, thereby giving you more time to add to your pot, as could continuing to work part-time to supplement retirement income. Equity release could be another possibility, or even downsizing, with either offering the chance to benefit from years of house price growth.
Of course, the key will be to start planning ahead from as early as possible, putting as much into your pension as you can. The earlier you start the bigger your pot – and your resulting retirement income – will be, so make sure to take advantage of a workplace pension and ideally set up an additional savings account to boost your pot even more.
Andrew Tully concluded: "The recent changes brought about by the Budget potentially provide more choice for people looking to generate a retirement income. But you still need a sizable pension pot or other savings to draw on to provide a sustainable income. Seeking professional financial advice can make a big difference to the value of the retirement income you could get."
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