Britain’s Not Ready For Retirement!

Britain's not ready for retirement

According to a survey by AXA Self Investor, 14% of Britons aren’t doing anything financially to prepare for their retirement. Research from Nielsen goes even further and says that over one third (37%) of all Britons have no plans to put away money for their retirement. And there are many, many more who are saving for retirement, but will not have enough when they retire to last for the rest of their lives. It’s as simple as this: Britain isn’t ready for retirement!

Today, we examine why and take a closer look at the statistics that show that Britain isn’t ready for retirement.

However, it’s not all doom and gloom as we also have the solution to help you make sure you are ready for retirement, including a simple formula to help you determine a very high level figure of what you need saved/invested before you retire.

 

 

So, Britain’s Not Ready For Retirement?

Well, the statistic in the opening paragraph tells much of the story. Our example above showed that someone retiring in 15 years’ time would need to save around £750k to sustain an ongoing income in retirement of £25k. However, 37% of people aren’t saving at all, and so are going to get nowhere near that figure.

There are many more damning statistics available, such as the following which can be taken from the ONS data. These figures only look at savings within company and personal pension schemes and it is well understood than many save towards retirement in ISAs, through investment property and other tools. However, these figures do shed some light on where the problem lies:

  • Around 42% of full time employees in the private sector still do not have workplace pensions
  • Of the 58% who do, 10% of these make no employee contributions, and a further 33% made employee contributions of between 0% and 2% of their salaries.
  • Only 6% of all private sector employees made employee contributions of 7% or over.

These statistics show that people are contributing to their pensions as a result of auto-enrollment regulations, but are doing very little beyond that. This means that most are probably saving around 1% of their salary into their pension, if anything at all.

With the average UK salary at around £28000 per year, this means that most Britons are saving less than £25 per month towards their pension. This is clearly not sufficient.

 

Preparing For The Future: The Nation’s Financial Plans

Even more powerful and interesting data has been released by AXA Self Investor, who have done some very interesting research into Britons and how they are saving for retirement. The most damning statistics are:

  • Only 25% of over 55s keep savings in a stocks and shares ISA – this shows both the lack of investment and the poor consideration of tax planning related to retirement.
  • Only 10% are happy with the returns they are getting – this tells me that Britain is still a nation of “savers” rather than “investors”.
  • 20% haven’t made any savings in the last 3 years – supporting the fact that the people not saving into their pensions probably aren’t making up for it elsewhere.
  • 56% feel that buying investments is overcomplicated – time to visit the investing section of Moneystepper!! 😉
  • 43% hope to travel and see the world during their retirement – good luck doing that when you are not saving anything towards your retirement. Travelling the world on the state pension is not an easy task!!
  • 9% don’t think that they’ll ever retire – man, I feel bad for one in ten Britons…

 

For a full illustration with all the findings of this research, I’ve attached the infographic below:

AXA Self Investor Statistics

 

What Can You Do To Reach Your Retirement Goals?

The first step is to plan for your retirement, however far away it might seem. Fill in the forms in the next section below to work out what you need to save each year.

Then, make a plan as to how you are going to save that. If you are struggling to save at the minute, you need to make and investigate your written budget to determine where you can cut back on expenses or if you can be earning more income.

Once you have the money to save each month, you should then work out the most efficient way to save this for your own personal circumstances. This is a subject to its own so rather than go into the detail here, I’ll refer you to another Moneystepper article on this topic.

Investing in ISAs vs Investing in Pensions (Moneystepper)

 

How Much Do I Need For Retirement?

If you want to try to calculate this accurately, you could be adding in hundreds of different variables. However, given that no-one can predict the future, there is little benefit to doing this. Instead, I would recommend that you use the following calculation in order to calculate your required retirement pot.

  • Calculate how much income you would want to have (before income tax if you are saving in a workplace or private pension). This will be based on today’s prices. This is “x” in the formula below.
  • Determine the number of years until you plan to retire. This is “y” in the formula below
  • The long term rate of return you believe you can achieve on your investment. This is “z” in the formula below and will be used as a decimal (e.g. 10% = 0.1)
  • Finally apply the following formula based on these figures:

x * (1.04 ^ y)
(z – 0.04)

This uses 4% as the proposed long-term inflation rate which you can also change if you want.

Therefore, if I want a retirement income of £25,000 per year, I’ll be retiring in 15 years’ time and I can get 10% return on my investments (long term stock market average and/or property investment), then my number would be:

25000 * (1.04 ^ 15)           =             £750,393
        0.1 – 0.04

So, when I retire in 15 years’ time, I will need £750,393 in my retirement fund.

The idea is that this fund should last as long as you live as your retirement income (increasing by 4% each year for inflation) is simply taken from the income generated from your investment itself and not from your lump sum you have saved.

This number may be daunting for many of you. However, remember that you have the time between now and when you retire to save that. To work out how much you need to save each year, you’ll need the following assumptions and formula:

  • Take your required amount from above (£750,393 in the example above). This is “a” in the formula below.
  • Determine how much you currently have saved for retirement. This is “b” in the formula below.
  • Take the number of years until you plan to retire. This is “y” in the formula below.
  • Take your long term rate of return from above. This is “z” in the formula below and will be used as a decimal (e.g. 10% = 0.1)
  • Finally, apply the following formula based on these figures:

(a – (b * ((1 + z) ^ y)))
((((1 + z) ^ y) – 1) / z)

In our example (if we already have £75,000 saved towards retirement), this is:

750393 – (75000 * (1.1 ^ 15))            =             £13,757
       (((1.1 ^ 15) – 1) / 0.1)

So, whilst the £750,393 figure does look terrifying, with 15 years to retire and £75,000 currently saved, we need to save £13,757 a year (which hopefully should be achievable in your last 15 years of employment when your salary is the highest).

All those formulas too much? Then, you can fill in the form below to calculate how much your desired pension pot needs to be and you much you’ll need to save each year along the way:

[CP_CALCULATED_FIELDS id=”6″]

 

None of this is particularly easy, but nothing worth working for is!!

Take these steps today and I promise you that you’ll be thanking your former self when retirement day arrives!

6 thoughts on “Britain’s Not Ready For Retirement!

  1. This is the sad state of affairs in the UK today, where people would rather live for today, and purposefully not think about their future. This only leads me to believe that many people are deeply unhappy, and thus rely on quick fixes i.e. money-wasting convenience, consumerism, and anything indeed that offers instant gratification.

    The problem is, how do we encourage people and educate them to see the amazing benefits of saving and investing, being able to live with a decent income, instead of living in poverty at retirement?!

    • For young folk, financial education should perhaps be included in the school curriculum as some kids may not get any good financial habits/advice from their parent(s).

      The government has made the first step, ie making employers auto-enrolling employees onto pension schemes, which is a start at least but they need to make such people aware that just paying into such schemes will not be enough.

      As for the people who opt out of auto-enrolment (and I count one of my close friends in this camp and she has NO pension provision), how can you advise them when they are not prepared to listen?
      weenie recently posted…Birthday Celebrations, plus my Bonus TreatMy Profile

  2. What has changed over the last 50 years or so that means we are in a worse place today? Are people saving less? Looking at say the mess of the 70’s I find it hard to believe. Or are these people all living in pensioner poverty today and nothing has really changed? It just always sounds like the lack of savings is a recent phenomena which I find hard to believe (maybe because their is a lot more data and free information today)

    Not that I disagree with the article, everyone should be looking after their retirement.

  3. Preparing for retirement takes a process, commitment, and consistency. Here in US, my colleagues are not concerned with retirement as the government takes care of this and they have 401(k). Rarely do I know people who have separate saving account for retirement or do some investment to speed up their retirement savings. I just wonder why they haven’t realized its importance. Don’t they want to retire with more savings and as early as 50 years old or younger?
    Jayson @ Monster Piggy Bank recently posted…The Cheapest Thing You’ve Heard OfMy Profile

  4. I must say I’m getting pretty tired of the – it’s somebody else’s responsibility to look after my retirement – attitude in Britain today. The changes to pensions in recent years have meant that the mainstream media are full of retirement and pension discussions so there is no excuse for people not being aware that action is needed.

    For the 37% who are doing nothing then IMHO it’s either laziness or worse an expectation that somebody else will look after them. Take some responsibility! Ignorance is no excuse and given the number of good books, blogs and calculators out there it’s not difficult to get started and then learn as you go. Within about 5 minutes it will certainly tell you that £25 is nowhere near enough.

    In the circles I move there’s always an excuse. Yeh I know life’s tough. Get over it and do something about it! I know I’m an extreme case with monthly savings of 55% of gross earnings, working towards early retirement in less than 10 years and 86% of the way there. But I firmly believe that the Average Joe can also have a pleasant retirement that doesn’t contain dog food (unless you own a dog of course) and lack of heating. It just requires responsibility acceptance.

    Retirement Investing Today recently posted…A Retirement Investing Today Q1 2015 ReviewMy Profile

  5. This shows me there are going to be a lot of disappointed millennials come retirement time: too few saving & investing money for the future (or able to) due to living expenses, loans and a credit-card lifestyle.

    Student loans will only exacerbate the problem and will mean putting off money-related decisions like home ownership and starting a family because of the additional expense involved.

    And all those things come way before planning for the future of course: a home, a family, a car, food, utility bills, holidays & loan repayments are all bills which are due NOW, so most won’t consider saving for retirement till they’re a bit older and earning more… by which time it will be too late.
    Myles Money recently posted…A Life of Debt SlaveryMy Profile

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