Nearly two-fifths of younger adults want to stop work by age 60, yet only a quarter have worked out how much they need to live on in retirement, says Royal London.
New research from the retirement specialist found 38% of under-35s plan to retire by age 60, yet 73% admit they are unsure how much money they will need to sustain their goal.
Stopping work by age 60 would require saving enough to cover three decades or even longer. According to benchmarks set by the Pensions and Lifetime Savings Association, a single person will need around £13,000 a year to achieve the minimum living standard, £23,000 a year for a moderate existence and £37,000 a year for a comfortable standard of living, excluding housing costs.
Royal London’s research found that, on average, those under 35 years of age predict they will need £1,086 per month in retirement, which would be mostly covered by the State Pension, but is likely to be a significant drop from their employment income level at age 60. On top of that, a considerable pension fund will be needed to provide income in the years before future retirees are eligible for their State Pension if they want to retire earlier than state pension age. The PLSA benchmarks also don’t include any housing costs, so those retirees with rent or mortgage costs will also see their monthly costs dramatically impacted.
Clare Moffat, pensions expert at Royal London, said: “Being so far away from retirement, the younger generation have an optimistic view of when they’ll be able to give up work but there is a significant gap between expectations and retirement reality. Two-fifths of younger adults do not plan to work beyond 60 years of age, even though they won’t qualify for a State Pension until much later, and that poses serious questions about how they will fund the type of lifestyle they want to enjoy when they’re older.
“While the thought of early retirement may be appealing, it also comes with a note of caution as it can carry significant risk. The more of your pension pot you take earlier in your retirement, the less there’s left to maintain lifestyle in later years.”
However, Moffat said savers in their 20s and 30s have a significant advantage, with both time and investment compounding enabling them to grow their savings.
“Early planning and setting realistic timescales and rates of pension saving is key, that way savings will accumulate earlier, building wealth over a longer period of time, and giving ambitious retirement goals a better chance of being met” Moffat added.
