People in the UK expect to spend an average of 38% of their retirement income on basic living expenses* but the reality is that they require nearly 53%.
Schroders Global Investor Study 2018 has revealed a significant gap between people’s expectations and the financial realities of a life in retirement.
Retirees are receiving a lower income in retirement than people approaching retirement currently expect. In the UK retirees are, on average, receiving 53% of their final salary annually. In the run up to retirement, people aged 55 and over expect to need 66% of their final salary to live comfortably. The lower than anticipated income can come as a shock to some people and highlights the need for proper retirement planning.
Bridging the income gap
Perhaps an indication that their final income may not stretch far enough, retirees in the UK are continuing to invest significantly, allocating 21% of their entire retirement savings** to investments.
In contrast, those yet to retire only anticipate investing 7% of their retirement savings.
Lesley-Ann Morgan, Global Head of Retirement, Schroders, commented:
“There is a real danger that people are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement, particularly in the current environment of increasing inflation.
“There is no magic wand for people. To avoid facing challenging financial circumstances on retirement, they need to recognise the need to start saving as much and as early as possible.
“Leaving retirement saving until you are nearing your 50s and 60s is likely to be too late to make up a savings gap.”
A need for retirement planning
For me, the key to funding your retirement successfully is proper retirement planning. This means building a financial plan – a cash flow plan – that projects your income, expenditure, assets and liabilities for your lifetime and illustrates how to structure your assets to fund your desired retirement. This is where we start with all our clients, so get in touch if you would like to find out more.
*Day-to-day expenses such as food, clothes and rent/mortgage
** Any types of investment intended to be used to generate a retirement income, e.g. company pension scheme, state pension scheme, personal pension, other savings and investments, releasing capital/equity from home, money/allowance from relative, inheritance.