Pre-retirees are gambling on income

Many people long for the day they can give up work and settle into an enjoyable retirement, but have you taken a moment to think about how you'll pay for it? Leaving the workplace means you'll suddenly be without an income, and unless you've planned and saved sufficiently, it may be a less comfortable retirement than you were hoping.

This is why it's so concerning that so many people appear to be gambling on their future retirement income, and are pinning their hopes on the likes of an inheritance or a lottery win in order to afford to live comfortably throughout their post-work years.

Retirement roulette

That's according to research from Aviva, which found that millions of workers aged 50+ have no set plans in place, and are instead relying on factors outside of their control. For example, 25% are relying on downsizing, hoping that buying a smaller property or relocating to a cheaper area will give them enough funds to live comfortably, while a similar proportion (24%) are relying on an inheritance.

A further 22% are banking on relatives no longer being financially dependent on them, while 13% are even hoping that a lottery win will come to the rescue, perhaps highlighting their pessimism at being able to achieve a comfortable standard of living on their own. However, many people aren't helping themselves when it comes to retirement planning, with few raising their contributions even in the face of higher earnings.

Peak earning, peak saving?

Respondents said that they reached or expect to reach their peak earnings period – the time at which they earn the highest amount of income during their lifetime – at an average age of 51, with it lasting for an average of five-and-a-half years. Yet while this could give them an opportunity to bulk up their pension savings, which is particularly important given their proximity to retirement, few actually do.

Aviva's analysis found that putting an extra £100 into a pension every month for the full 5.5 years of peak earnings could result in a £25,000 boost to their pension pot when the time comes to retire, yet despite this, only 12% say they have or would increase their workplace pension contributions during this time, a figure which rises to just 14% even among those who expect to retire in the next two years.

Instead, 21% would spend the extra income on a major one-off purchase such as an extension, new kitchen or new car, while 20% would spend it on everyday living and enjoying themselves. A slightly more sensible 34% would save more during their peak earnings period, but if they're not putting those savings into a workplace pension, it may not build up in quite the same manner.

This lack of commitment to pension saving isn't surprising when you consider that 22% of workers aged 50+ say they're yet to take retirement planning seriously, despite the fact that they may only be a decade away from retirement. Not only that, but 41% haven't calculated how much they'll actually need in retirement and 42% don't know how much they'll need to save, with this kind of apathy potentially having damaging long-term consequences.

"As everyday financial pressures take their toll on older workers, many are postponing retirement planning and are instead relying on factors other than savings – many of which are outside of their control – to afford a comfortable retirement," said Lindsey Rix, managing director of Savings and Retirement at Aviva. "Even those options that might seem guaranteed, such as making a profit from selling a home, could pose a challenge should economic or market conditions change.

"Wherever possible, retirement saving shouldn't be left to chance. Although older workers have multiple demands on their income, taking time to understand what needs to be saved in order to afford a good standard of living in retirement and putting more away each month – no matter how small the increase – can make a big difference."

What can you do?

The research highlighted the fact that many older workers have significant demands on their income which could be hampering their ability to save into a pension, with 33% citing the cost of living as a key barrier and 39% blaming their mortgage.

Yet this doesn't mean that pension planning should be put entirely on the backburner. If you're trying to pay off your mortgage, make sure you're on the best deal possible to keep your interest commitments to a minimum, and always be on the lookout for ways to keep your household costs in check (such as making sure you've got the cheapest energy tariff and best-value insurance policies).

Speak to a financial adviser to get an idea of the kind of pot you'll need for retirement and how much you'll need to save in order to achieve that, and do everything you can to reach that goal. This includes upping your pension contributions when you hit peak earnings to make the most of employer contributions and tax relief, but above all, don't leave it to chance – your retirement isn't worth gambling on!