Will the money you put away today be enough to live on when you stop working?

For some people, the act of paying into a Workplace Pension each month feels like enough, but it might not be.

According to an international study by Schroders; 88% of retired investors says that they regret not saving more, meanwhile:

  • a quarter of those wish they had contributed “a lot more”
  • The average investor currently puts away 11.4% of their annual income for later life
  • This is 2.3% less than the 13.7% they believe they should be saving

Are you saving enough?

It’s a complicated question. To answer it, you need to know how much you will require in annual retirement income, how long you will be retired for and how that translates into saving during your working years.

Your financial planner, using financial forecasting software, can calculate how much retirement income you will have if you do not make any changes to your current Pension savings. They can also let you know if there is a shortfall between that figure, and your retirement income goals.

If you are relying solely on a Workplace Pension and a State Pension to provide your income in retirement, you are likely to find that your post-work lifestyle will be much more strained than you anticipated.

If your State and Workplace Pensions are not going to be enough, where should you turn?

In the UK, research from Age Partnership has shown that 20% of adults do not know how they will fund their retirement, whilst many plan to rely on:

  • Workplace pension (68%)
  • Private pension (49%)
  • ISA or savings account (37%)
  • Investments or stocks (36%)
  • Downsizing property (13%)
  • Working during retirement (11%)
  • Equity release (11%)

Does age matter?

Logically, the earlier you begin planning for retirement, the more time you have available to do so, and the easier it should be to save enough to live your desired lifestyle in later life.

Research shows that someone who begins to contribute toward their Pension at the age of 30, will need to put 15% of their annual income aside, to retire and live on the equivalent of 50% of their income when they reach 60.

Since the introduction of automatic enrolment, many more people are now making contributions to their Pension fund from the age of 22. Unfortunately, with minimum contributions of:

  • 1% employer and employee in 2017/18
  • 2% employer and 3% employee in 2018/19
  • 3% employer and 5% employee from April 2019

It is unlikely that this alone, will be enough to secure a substantial retirement income. With these percentages being calculated using money earned between £5,876 and £45,000 each year, that means that low contributions, will not produce a liveable income in retirement.

Increasing your Retirement Income

If you do not think that your current savings will leave you with enough retirement income to live the life you want to, you have three options:

  1. Save more: If you can increase your pension contributions now, you will have more money to live on in your later years. Alternatively, you may want to look into saving into an ISA, so that you do not breach the Annual Pensions Allowance, which grants tax relief on the first £40,000 you contribute to your pensions each year.
  2. Accept the shortfall and live a more restrained lifestyle: By lowering your expectations, you can continue to only save small amounts, without setting yourself up for disappointment in the future.
  3. Work for longer than you planned: Working longer achieves two things; extending the amount of time your Pension can remain invested; as well as adding more money into it if you earn enough to do so.

If none of these seem quite right in isolation, it’s time to come up with a plan:

Financial planning for a retirement income to suit you

There is no one-size-fits-all solution to retirement planning. Everybody will have different goals and unique situations, which call for bespoke ideas and a tailor-made plan to achieve their dreams.

That means that a financial plan is necessary to ensure that you can live well in the moment, whilst putting enough to one side for later life. Of course, you could live on a shoestring during your working life and put every penny into your retirement fund, but that will severely impact your quality of life in the meantime. It will also mean that you miss out on the many opportunities to enjoy life and experience new things, so you need to account for all aspects of life in your plan.

You could try to do it yourself, but working with an independent financial planner is much more likely to improve your financial outlook, as we have years of knowledge, information and insight into the world of finance.

Research has shown that working with a financial planner can boost your retirement savings by up to £98 each month, boosting your annual retirement income by £3,654. (Source: Unbiased)

Ready to talk to a professional about your retirement plans? Get in touch with Ben on 0113 262 1242.