Retirement may seem a long time away but it can feel more immediate when you calculate how many pay days you have left to actually contribute to a pension pot and fund your golden years.
Research by Aviva found few people consider the actual number of pay days left to build their retirement savings, with a quarter of workers – the equivalent of around nine million people – having no idea how many pay days remain before they intend to stop working.
With typical cost of a comfortable retirement at £43,900, it is important to find a reliable source of income to replace your regular salary beyond the state pension once you retire.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
But Aviva’s analysis suggests a lack of preparation, particularly among older generations who don’t have as much time to save, with many overestimating how many paydays they have left to save into a pension.
Latest Videos FromMoneyWeek
Alistair McQueen, head of savings and retirement at Aviva, said: “Counting pay days is a simple but powerful way to bring retirement planning into focus.
“Many people overestimate how long they have left to save, which can lead to shortfalls later. Thinking in terms of paydays makes the challenge feel more real and immediate.”
The importance of counting the paydays until your pension
Knowing when you want to retire and how much you need is an important part of retirement planning.
But it is also important to know how much time you actually have to save into a pension.
Aviva found that almost a third of those aged 55 and over admit they don’t know how many pay days they have left, and amongst those aged 45 to 54, the figure rises to 35%.
However, some older workers drastically overestimate the time they have left to save, the insurer said.
The research found 17% of people aged 55 and over, who could claim their state pension in around 12 years, believe they have more than 250 pay days left – the equivalent to 21 years of monthly pay cheques when in fact they only have 144.
A further one in 20 think they have more than 500 pay days left, which would actually mean working for another 41 years.
There is some good news for future generations though. Younger workers appear more proactive than most, with more than a third of 25 to 34-year-olds having already calculated their remaining pay days, the highest proportion of any age group.
McQueen added: “If you believe you have hundreds of pay days left, you may delay acting – but the reality is often very different. We encourage everyone to take stock now, review their pension contributions, and consider what steps they can take today.”
The importance of being prepared for your pension
It is not just timing that people are unprepared for. A quarter of people admitted they didn’t know how much they would need in their pension pot by the time they retire. Almost a third believe they could live on less than £250,000 – a figure that would buy an annuity of around £13,700 a year at today’s rates, or £1,145 per month.
Analysis by Quilter for MoneyWeek suggests a single person would need a much larger pension pot worth £738,000 to generate enough for a comfortable retirement from an annuity. A couple would need £929,000.
Habits also vary when it comes to monitoring progress in pension performance, according to Aviva.
One in six said they never check their pension pot and a further 17% only check it annually. Half say they do review their savings quarterly or more, with younger workers leading the way. Two thirds of 25 to 34-year-olds said they check their pension at least quarterly and 17% check on a weekly basis.
McQueen said: “The sooner you start planning, the better prepared you’ll be for the retirement you want.”
