What happens if you retire without enough?

If you reach retirement age with insufficient savings, you face several choices.

You might continue working. Delaying retirement by working longer gives you the option to save more, and means your savings don’t need to stretch quite as far when you eventually retire.

Alternatively, you could reassess your lifestyle and spend less in later life. Cutting back on expenditure in retirement isn’t always the answer, as some expenses are unavoidable.

For homeowners, one option on the table is to release equity from the value of your property, which can be used to fund your retirement income.

New research by insurer SunLife has found that most people in their 50s have insufficient pension savings to afford a comfortable lifestyle in retirement.

The research looked at the finances of 3,000 over 50s, finding that 21% don’t have any pension savings.

For the 79% in their 50s who have saved for retirement, the average pension pot stands at £146,666.

A recent report from The Pensions and Lifetime Savings Association found that the price of a moderately comfortable retirement is £20,200 a year.

By ‘moderately comfortable’, they mean enough to cover the cost of necessary living expenses and some luxuries, including an annual European holiday.

With the full basic state pension at £8,767 a year for an individual, the balance of £11,433 to reach this moderately comfortable retirement income level would take a pension pot of around £282,000.

SunLife calculated the size of the pension pot based on current annuity rates and factored in a 3% inflation growth a year for the retirement income.

Based on their calculations, this means it would require savings to make up the shortfall of £357 a month from age 50 to age 65. For a 55-year-old, they would need to save £531 a month, and the savings target rises to £876 a month for a 59-year-old.

But what about if your goal in retirement is more than a ‘moderately comfortable’ lifestyle?

The Pensions and Lifetime Savings Association defined a more comfortable lifestyle, including more than one holiday and more spending on home improvements, at the cost of £33,000 a year.

This means that, for the average size pension pot, a 50-year-old would need to save £1,669 a month to retirement with sufficient savings at age 65. The target monthly savings rise to £2,492 for someone who is 55 and to £4,125 a month at age 59.

Simon Stanney, equity release, marketing director at SunLife said: “According to our research, just 9% of people in their 50s are confident they have enough in savings, investments and pensions to fund their retirement; a further 32% say they ‘hopefully’ have enough with a 36% saying they definitely don’t. A further 15% say they are not sure.

“Obviously the average over 50s’ pension pot is not yet mature, and many over 50s will reach their target by the time they retire, but for others, especially those nearing retirement age, the amount they need to save each month is quite substantial if they are to build up a big enough pot to retire ‘comfortably’.”

To check out your retirement planning options, why not talk to Kellands today?

Pension investment funds and the income from them may fluctuate and can fall as well as rise.  Eventual retirement income will depend on the size and value of your pension pot, future interest rates and tax legislation. Tax treatment is dependent upon individual circumstances and may be subject to change in future.

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