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Savings shortfall puts life goals on hold

Savings shortfall puts life goals on hold

Category: Money Saving

Updated: 23/11/2016
First Published: 23/11/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It is an unfortunate fact that most of our life goals require money to accomplish, and as a result 45% of Brits sadly believe that they don't have the savings needed to achieve their ambitions. Given the low rate savings environment that has dominated of late, this may not come as a surprise, but it is still unhappy news.

Saving's a dream

However, it isn't just the savings environment that may be against savers, but also their own ability to save up sufficiently that is holding them back. According to the survey, conducted on behalf of Zurich UK, millennials in particular believe that a lack of savings is stopping them from realising their current goals, at 61% of 18 to 24-year-olds and 51% of 25 to 34-year-olds, compared with just 33% of those aged 55 or over.

The main goals that respondents aspired to were starting a family and travelling the world, both of which are certainly not considered cheap dreams. With the latest UK household savings ratio (which is the measure of UK households' saving as a percentage of total available households' resources) at 5.9%, only slightly up on the all-time low of 4.6%, there is clear evidence that the lack of savings is indeed a significant block for many people.

A happy retirement?

And it is not only current goals that are suffering. Almost three-quarters (72%) of those under 65 said they have goals they want to achieve when aged 65 or over, such as travelling more often or for longer periods, taking up new hobbies, or being in a position to financially support their own children, grandchildren or stepchildren. Yet 51% believe a savings shortfall will prevent them from realising these goals.

On the other end of the spectrum, people aged 65 or over are more optimistic, with 45% expecting to live longer than the actual life expectancy. But to be able to reach this happy stage, people need to be able to save for their retirement. Even though people realise that saving is important in being able to realise their retirement dreams, a worrying 26% do not have either a private or workplace pension, while a whole 17% have no savings whatsoever!

Of the 55% in pre-retirement who do hold private or workplace pensions, only 16% said they felt confident they knew how much they should be saving every month to comfortably afford the standard of living they expect from their retirement. The study further found that on average, those with a workplace pension saved 7.25% of their salary into their pension.

How does this match up? Benchmarked against the ONS contribution average – which showed 60% in the public sector and 15% in the private sector contributed 6% or more of their pensionable earnings – this suggests people believe their own contributions are higher than the average. However, to secure enough money to live comfortably in retirement, a commonly cited rule of thumb is that total contributions from both employer and employee should be about half your age as a percentage of salary. This would mean that a 20-year-old should be saving 10% of their income, a 40-year-old should be saving 20%; both conversely a far-cry from the 7.25% that was being saved on average by the pre-retirement respondents.

Get into the habit

It may seem impossible to find some money to put aside when you're already stretched, with rents continuing to rise and household bills adding up, but even the smallest start can end up making a big difference. Simply by putting your small change into a pot, you are saving up. And once those pennies have added up to a decent amount, you can put them into a savings account to start gaining some interest – rates may be low on average, but there are still decent accounts to be found if you look hard enough and act fast. You may not be able to save up enough to fly first-class around the world, but your dreams may be less impossible than you think.

And don't forget about your pension! If you're not already auto-enrolled into your workplace pension, ask your employer about it. Or, if you're nearing your retirement, consider talking to an independent adviser (such as our annuity comparison service) to see what you could do to turn your savings into the retirement of your dreams.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.