Retiring early is the dream for many people. Indeed, according to research from Barclays, UK adults aged 18-34 are aiming to retire at 56, more than 10 years prior to their projected State Pension Age. Additionally, most want to do so with a pension pot of more than £300,000.
Are these aims realistic? Are they arbitrary numbers based on ideals, or have millennials got a plan to fast-track the way they build their retirement capital?
Unfortunately, most evidence points to the former.
Currently, people within this age group save an average of £200 each month; which will lead to a retirement fund of £52,800, according to the report from Barclays; just 17% of their original goal.
Additionally, that amount is unlikely to support retired millennials for longer than five years, as their expectations for retired life include:
- Eating at restaurants twice a week (30%)
- Annual cruises (40%)
- Weekly cinema trips (40%)
- Annual gym memberships (20%)
This lifestyle is likely to cost around £10,600 per year, before factoring in essential living costs such as mortgage payments.
Issues facing millennials
To achieve their goal, millennials are hampered by three key factors:
- Relatively low contributions
- Limited time, they want to retire more than 10 years prior to state pension age
- High level of desired retirement income
Unfortunately, it’s not possible to have all three. Low pension contributions for a short period of time, is unlikely to lead to a large retirement fund. Therefore, something must change; either contributions will need to increase, or the length of time they are made for will need to be longer.
The research also shows that people in this age group are reluctant to put more away, as they do not want to cut back on:
- Their social life (54%)
- Annual holidays (86%)
- Eating out and nights out (54%)
- TV, fashion and food subscriptions (45%)
- Regular takeaways (21%)
- Visits to coffee shops (20%)
- Expensive music festivals (20%)
The options facing this generation
High retirement income goals are not necessarily unachievable. However, to get there will often require changes to your daily habits and a realistic financial plan. Options for achieving retirement dreams include:
Working for longer: Early retirement is a dream many people have, but is it worth it, without being able to afford all the activities planned? 2 million people over the age of 65 are still working (Source: Gov.uk). Working for longer not only means that more can be put into your retirement fund, but that the State Pension can be delayed for a larger income in subsequent years.
Making (and contributing) more money: If working longer isn’t an option, then it might be time to re-evaluate your income. Professional development or undertaking more qualifications could lead to better salary prospects, which will give you more income to save for retirement.
Taking help on offer: Investing in a Workplace Pension means that you will benefit from both employer contributions and tax relief. Tax advantages are also available through Personal Pensions, if that is a route you wish to explore.
Making the most of inheritances: If you have assets or money coming your way in the future, try to limit the Inheritance Tax (IHT) bill you will face. Talk to relatives and encourage them to seek financial advice to reduce the amount your family could lose.
Pure luck: The most unrealistic plan is to wait until life hands you a better retirement fund. Winning the lottery, or marrying into money might be reality for some, but it is much more sensible to rely on your own financial plan and commit to making changes yourself. Any additional luck that comes your way can then be considered a bonus. And if your numbers never come up? You will still have a happy retirement.
Adjusting your goals: If the thought of giving up your morning coffee, long weekends and evenings out is too much for you, you can change your retirement aims to fit your current spending habits. However, you will also need to adjust your retirement lifestyle, as the activities you have planned may not be within budget. This option is a last resort and can be avoided through financial planning and making changes to other areas of life.
To talk to a financial adviser about your retirement goals and how you plan to achieve them, get in touch with Ben on 0113 262 1242.