Life expectancy is rising at a rapid rate in the UK. According to research, the average life expectancy of males will reach 85.7 years by 2030, with females living an average of 87.6 years. These predictions show a stark increase from the 2012 average life expectancy figures of 79.5 years for men and 83.3 for women.
Although rising life expectancy isn’t anything new, it seems that the message isn’t getting through when it comes to planning for retirement.
According to research by Aegon UK the average UK resident will face a shortfall of £23,000 on their income when they reach retirement.
So what should you do to ensure you are being realistic about your retirement and what steps can you take to avoid facing a shortfall in retirement?
Make a plan
Despite the fact that the national retirement age has been scrapped, leaving the potential for workers to continue in employment well into their later life, research suggests that the younger generation actually plan to retire earlier than their parents. The so called ‘Millennial’ generation expect to fully retire at 62 and four in 10 want to semi-retire at 57.
Clearly there is therefore going to be a disparity between what people want to achieve for their retirement and what they will actually have accumulated.
Do your research
There are many tools available online that quickly and simply give you an estimate of the amount of time you may be retired for. If you have a target annual income for your retirement, you will then be able to work out how much you need to save. Don’t forget to factor in inflation; if you are several years away from retirement, you need to consider that prices will increase and you may therefore need to account for greater expenditure requirements.
Get to grips
If you have had jobs at several different companies, it can be remarkably easy to lose track of pension funds. It’s important to know where you stand and get everything in place so you can make an informed plan going forward. Once you have all of your documentation, it’s time to plan what to do next. Depending on the schemes you have in place, it may be advisable to consolidate some or all of your pensions. However, the costs and benefits of doing so will need to be carefully weighed up and it is best to seek advice from an independent financial adviser specialising in pensions should you be in these circumstances.
Once you have your pension plans in place, it can be tempting to sit back and forget about it. However, it is important to regularly review your pension savings and ensure you are on track. It may be that you need to consider increasing your payments at certain stages in line with any pay increases you may receive. Remember that paying into a pension can bring other benefits – such as reducing corporation tax if you own your own company or maximising the availability of tax relief on income if you are employed or wish to make pension contributions personally. For more guidance on this you should seek advice from an independent financial adviser.
Start saving early
Taking everything into consideration, it’s clear that the sooner you start to put savings plans in please for your retirement, the better. Whilst there is always a balance to be had between saving for your future and having accessible funds for the things you need to spend on in the more immediate future, the greater the amount you manage to save, the greater your number of options will be when you reach retirement. As with most investments that are market linked, the longer the investment is held, the more likely you are to see a decent return.
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