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Women underestimate pension needs by £400K

Women underestimate pension needs by £400K

Category: Retirement

Updated: 01/07/2014
First Published: 01/07/2014

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 It is now over 6 months old so the content may be out of date.

You're working hard, saving harder, making regular contributions to your pension and have ideals of living the high life in your golden years. But do you know how much actually you'll need for that kind of comfortable retirement? Well, if recent figures are anything to go by, you could be underestimating the amount by as much as £400K.

Research from BlackRock has revealed that young women (those aged between 25 and 34 years old) drastically misjudge how much they'll need to achieve their desired lifestyle in retirement – on average they're looking to secure a household income of £29,000 per year and think they'll need a pension pot of £142,000 in order to fund it, when in reality around £555,556 would be needed to deliver that kind of income.

That's a big shortfall, and it means a lot of younger women could get a shock when they approach retirement – particularly if they don't become more engaged with their finances. A concerning 64% of that age group haven't started to plan financially for their retirement, with it coming 6th on the list of their financial priorities (behind paying off debt, growing wealth, saving for a house deposit, paying off their mortgage and paying for their children's education), with just 13% saying they're "actively investing".

Although financial engagement increases with age – women aged 45+ put funding a comfortable retirement at the top of the list – it's concerning that younger women aren't yet catching on to its importance, particularly given their high expectations.

Juliet Bullick, of BlackRock, comments: "It is clear that there is a huge gap between what income young women say they need at retirement and the steps they are taking to help get them there. It's entirely understandable that young women have other financial priorities [but] there are also some really simple and practical changes that can be made to everyday life to help build up a pot of money. We are all living longer, healthier lives and making a plan for how we live it comfortably has never been more important."

Things like cutting back on luxuries and increasing your savings in line with any pay rises could easily make a difference, and saving as much as possible from as early as possible is the only way to come close to realising those dreams – in fact, two-thirds of those surveyed would give that advice to their younger selves.

It's also important to make sure you get the most from your savings. The survey showed that young women have more than 80% of their savings and investments in cash deposits with 43% intending to increase that allocation in the year ahead, and while saving in any form is laudable, opting for the security of cash may not always give the best returns.

Over a third of younger women think that cash savings will help fund their retirement income, but they're underestimating the longer-term effect inflation can have - a cash pot of £50,000 five years ago, for example, would only purchase £42,320 worth of goods today.

That's why diversifying your savings and investments will be essential. Currently their allocation to stock investments is just 7%, but with the rules surrounding cash and stocks & shares ISAs having just been relaxed, it could be a great time to test the water and take a bit more risk for the prospect of better returns (just make sure you're comfortable with that level of risk).

There are some encouraging findings, however. Younger women are more likely than any other age group to seek the help of a financial adviser to help them plan for retirement (39%), and they also have the most interest in learning more about savings and investments (55%). The figures also highlight how beneficial this kind of support can be, with 57% of those that use an adviser feeling in control of their financial future and 65% being confident that they're making the right investment decisions.

Putting financial planning at the top of the agenda can ensure you're totally in control, and will hopefully be more confident of your financial future too. A pot of £555,000 could take a long time to build up but it can be done, and if you're serious about achieving a decent retirement income – by starting early, saving as much as possible and getting the right kind of advice – it could well be achievable.

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