Why it’s more important than ever to plan for your retirement.
- It could last longer than you think
One of the blessings of the latter part of the last century and early 21st century, is the rapid increase in lifespans. Retirement is, for many, now a long journey to look forward to; not, as it once was, a relatively short time between stopping work and death.
Yet, at a time when so much about ageing is improving, there is a cloud being cast: worry about whether our savings will last. Today, a 65-year-old man in the UK has on average another 18.5 years of life ahead of him (up from just 13 years in the early 1980s), while 65-year-old women will live another 20 years plus.1
Put simply, we could spend more than a third of our life in retirement. While this is something to celebrate, without a long-term financial plan, each of us runs the risk of outliving our savings.
- It’s a struggle to get by on just the State Pension
Most of us will get a State Pension, but the income from it will probably only cover our basic needs. Furthermore, those without a complete 35-year National Insurance record will not qualify for the full amount. For those reliant on state support, the question might not be how to retire successfully, but how to retire at all.
Given the anticipated increase in longevity and the declining ratio of those in the workforce to those in retirement, the government is proceeding with an accelerated increase in the State Pension age. From 2020, it will be 66 for men and women, increasing to 67 between 2026 and 2028, and then linked to life expectancy after that. The Office for Budget Responsibility has warned that many of those who are working today might not be eligible for a State Pension until they are 70.
The current State Pension system has changed enormously since its inception in 1909, and will do so for many more years to come. Whatever its future, it’s clear that the population as a whole in the UK may not be able to rely on it forever. Therefore we must take personal responsibility for our own retirement finances, as there may be precious little in the way of a state safety net to fall back on.
- People overestimate how far their savings will stretch
When it comes to hard numbers, there seems to be little grip on reality about how much retirement income a savings pot can translate into when the need arises. On average, Britons believe that a pot of £233,000 will be enough for their desired retirement income of £26,000 a year. But research suggests that they need to save at least £525,000 for this income, even including the State Pension.2
Given increasing life expectancy, it’s imperative that we save more to help fund a comfortable old age. Nevertheless, more than half of people in the UK either aren’t saving at all for their retirement, or they aren’t saving nearly enough to give them the standard of living they hope for.3
If you fall into either of these categories you have three choices: adjust your income expectations, start saving more, or retire later.
- It can be hard to catch up
A common mistake is to try to play catch-up later on in life. This is because the longer you delay saving, the less time you have to benefit from investment growth. Because compounding can enhance the value of your savings, the discomfort of each pound you save now can be greatly outweighed by the advantages you gain later.
Knowing you’ll be all set to meet your basic needs – with enough left over to let you comfortably do the things you look forward to in retirement – is something well worth striving for. Moreover, it will give you far more freedom and control over your lifestyle down the road.
- The burden of saving has shifted
In the face of rising life expectancy and spiralling costs, the trend has been for employers to wind up their defined benefit (final salary) schemes in favour of their less costly, and in many cases, less favourable defined contribution counterparts.
This has shifted more of the burden of saving from employers to employees, meaning that the majority of today’s workers are now solely responsible for making their own financial provision for retirement.
Many experts warn that the end of defined benefit pension schemes, chronic under-funding of defined contribution pensions, and increasing life expectancy are creating a perfect storm that threatens to destabilise the financial wellbeing of millions of future retirees. The message is clear: a comfortable retirement can only be assured if we take steps to save enough money – and in the most suitable saving schemes.
The Partner Practice represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/about-st-james-place/our-business/our-products-and-services. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
1 Office for National Statistics, National life tables, 2017
2 BlackRock, Investor Pulse Survey, 2017
3 Money Advice Service, 2018
Roy Duns
Senior Partner Practice of St. James’s Place Wealth Management
Tel No: 0191 3851530
www.sjpp.co.uk/scrimgerandoakes
