Would you like to retire at 56, with a fund of £300,000?
For millennials, this is an average expectation, according to research from Barclays. Those same 18-34-year-olds also plan to spend their retired years travelling the world, eating out and owning multiple homes.
Can it be done?
We can’t all marry into money or win the lottery. It’s a nice dream, but for most of us, the reality will be quite different, and based on the average saving habits of millennials, no.
Harsh reality
The study shows that the current trend of putting less than £200 into savings or pensions each month, will probably mean that young people won’t meet their retirement goals. In fact, at the current rate of saving, millennials will need to work for 125 years to realise their aspirations.
Figures from Aegon show that millennials can expect to have a retirement fund of £52,800 by their 56th birthday, significantly less than the £300,000 they both want and are expected to need to support their retirement lifestyle, according to the research. After paying for a lifestyle of annual cruises, weekly cinema trips and gym memberships, that is likely to last for less than five years.
Is it as simple as saving more?
Of course, changing spending and savings habits can be difficult. But it is usually a case of weighing up your priorities.
Millennials report that they do not save more as it would interfere with their ability to afford:
- Annual holidays (86%)
- Going out for food and drink (54%)
- Fashion, food and media subscriptions (45%)
- Regular takeaways (21%)
- Takeaway coffee (20%)
- Tickets to big music festivals (20%)
For many, trying to build a deposit for a home is a more immediate financial priority than retirement. Though, in an ideal world, saving for both would be possible.
There is no question that cutting back on some of these luxuries could increase the amount young people are able to save and may have a significant impact on their eventual retirement income. But there are other ways to make sure that your pension fund is performing to its full potential.
Things to do to improve your retirement planning prospects
Some tips for doing this include:
1. Be realistic
Set yourself goals which you will be able to meet. It is far better to exceed your goals and give yourself a better retirement fund than planned, than to set yourself up for failure with unrealistic aims. Then, understand what you need to do to meet them.
2. Pay in more, pay in sooner
In retirement planning, sooner is always better. The earlier you begin to make a serious effort to improve your retirement income, the more time you will have to build up your pension fund through a combination of your own and employer’s contributions, and hopefully benefit from the growth on money invested. It is equally important to adjust your strategies and take advantage of new opportunities along the way.
3. Take all available help
If you are eligible for a Workplace Pension, use it. Do not be tempted to opt out of your scheme, perhaps due to the increases in minimum contributions, for people who have been auto enrolled.
Try to take an active role in planning for retirement, rather than assuming joining a Workplace Pension is all you need to do. You need to check that what you and your employer are contributing will be enough to allow you to retire on your terms, at time of your choosing, with sufficient income.
4. Talk to your family
When the moment comes up, talk to your loved ones about inheritances. This is not to confirm that you will be getting your fair share, but to make sure that your older relatives are aware of Inheritance Tax (IHT), how to reduce it and the importance of having a valid will. Of course, if you happen to find out that you will benefit in the future, you can begin to think about whether you will use all of that straight away, or if you could contribute some or all of it toward your retirement income.
5. Make sacrifices
Are you looking for a home in London because it’s trendy, or because you cannot live anywhere else? Look at every big decision from a financial standpoint and decide whether you can make sacrifices now, so that an older version of yourself can live a more comfortable life.
Even smaller sacrifices, like taking your own coffee to work can soon add up to a sizeable additional monthly pension contribution.
6. Marry well, win the lottery, etc
This luck won’t spread to everyone, but a few of us may find ourselves picking the right six numbers or falling in love with the heir to a fortune. Otherwise, it’s back to budgeting and managing your finances sensibly. Fortunately, that’s where financial advisers can help.
7. Take financial advice
Financial advisers are professionals with years of experience in taking their client’s dreams and aspirations and finding solutions and methods to make them reality. You might feel like financial advice is strictly for the rich, or older people. But, the earlier you begin to form a relationship with a trusted professional, the longer they will be able to help you to achieve your aims and ambitions.
To start planning towards a realistic retirement that works for you, get in touch with us on 0207 808 4120.