Home Finance Are People Underestimating the Amount that they Need for their Retirement?

Are People Underestimating the Amount that they Need for their Retirement?


Be honest, have you ever thought about how much capital you’d need to sustain yourself in retirement?


If the answer is yes, recent analysis by investment group Sanlam suggests that you may have underestimated this sum. Apparently, more than two-in-five workers under the age of 45 risk running short of cash in their retirement, with 43% of this demographic believing that a pension pot of £100,000 will be enough to rely on.


However, this is unlikely to be enough, while a growing number of people are failing to save consistently towards their retirement. Here’s why:


Why Isn’t £100,000 Enough for Retirement?


In order to provide some context, imagine a single 65-year old man buying a £100,000 annuity with a five-year guarantee. While this sum may seem like enough, it would translate into a minimal annual income of just £5,400 (or £450 per week), on top of a state pension that continues to decline as the official retirement age rises.


With state pension resources dwindling, the retirees of the future will find it increasingly difficult to supplement their private or workplace pension fund. At the same time, we’re continuing to see inflation rise at a disproportionate rate to earnings, creating a spiralling cost of living that will place a greater burden on savers over time.


Inflation rose to 2.5% in July, for example, and while this represented the first spike since November this rate remains considerably higher than the Bank of England’s (BoE’s) target of 2%.


Consumers are also struggling to cope with minimal savings rates, despite the fact that the base interest rate has increased from 0.25% to 0.75% since November. While this has increased the amount repayable through variable mortgages, most banks have yet to apply the higher rate of interest to savings accounts or similar products.


So How Much is Required to Build a Viable Pension Fund?


In order to enjoy a comfortable retirement, savers should instead be aiming funds that deliver a monthly income of around £2,000. This means that their total pot, including state pension contributions, should be worth around £210,000 and more than double the amount currently deemed as acceptable by savers.


Given this and the fact that around one-in-three under-45s had only saved £10,000 or less towards their retirement, it’s imperative that people take decisive and proactive steps if they’re to boost their pension pot.


Optimising employer contributions to a workplace scheme would be an excellent place to start, while transferring multiple funds into a diverse and high yield SIPP could offer long-term gains.


Regardless of the steps that you take, it’s crucial that you recognise the obstacles to a comfortable retirement and try to navigate these through knowledge, insight and strong decision making.