Many Brits are facing a huge gap between when they want to retire and when their savings will actually let them, new research says – with some currently on course to have to wait more than two decades longer.
On average, people would like to retire at age 61 – five years before the current state pension age of 66 (rising to 67 in April), according to a study on Britain’s retirement expectations – and how financially prepared people are to meet them – by savings platform Flagstone.
But currently only 14% of people are on track to meet that milestone with their desired savings amount to retire comfortably.
Start your trial of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Katie Horne, savings expert at Flagstone, said: “The fact only 14% of Britons are on track to retire when they want to is a wake-up call – but it's not insurmountable. Even those on six-figure salaries face a gap of over a decade between their desired and realistic retirement age. That shows this is as much about strategy as it is about income.”
Latest Videos FromMoneyWeek
What is your real retirement age?
The projected retirement pot of everyone surveyed – from a group of 2,000 in February – was modelled using a 5% annual growth rate and their current yearly pension contributions.
Respondents were classed as ‘on track’ if their projected pot would meet the amount needed for their chosen retirement income and age.
When it comes to income, those in the survey said they would need around £56,822 a year in pre-tax income in retirement. The pensions association Pensions UK estimates you would need, after tax, around £43,900 for a single person for a comfortable retirement, which is about the same amount.
Based on a pre-tax income level of £56,822 per year, a retirement age of 61, and the 4% withdrawal rule, the retirement pot required to support this lifestyle is around £1.42 million, according to Flagstone’s calculations, in a drawdown pot not an annuity.
However Brits aged 55 and above – the demographic closest to retiring – currently only have an average total of £146,668 saved for retirement, according to Flagstone’s research. The average contribution, across all demographics, is around £6,963 a year.
At this rate, most people won’t be able to retire until the age of 83 – a 22-year gap between aspiration and financial reality by Flagstone’s calculations.
This also means less time to enjoy retirement, with Office for National Statistics (ONS) life expectancy figures showing the average woman lives until 83, while it’s 79 for men.
Some amount of gap between desired and likely retirement is consistent regardless of income. Even those earning over £100,000 face an average ‘retirement readiness gap’ of more than ten years.
The research also showed a stark gender pension gap. The average man has £141,663 saved for retirement and contributes £7,435 a year. Women, by contrast, have saved £78,171 – roughly half as much – contributing £6,363 annually.
Closing the gap
Brits are actively doing what they can to save for retirement. A workplace pension remains the most common way to save, according to the research, used by 60% of people, followed by savings accounts (57%), and private pensions (41%).
One obvious way to grow your pension pot is to increase contributions (42% of those surveyed said they would consider this). But other tactics included speaking to a financial adviser (33%), and reviewing pension providers and fund performance (29%).
Horne from Flagstone, said: “For many, saving more is only part of the answer. Making sure existing savings are thoughtfully placed can be equally important. That might mean consolidating old pension pots, moving cash into accounts paying higher interest rates, or switching to an investment fund with stronger long-term performance.
“Even among experienced savers, time is often an overlooked factor in retirement planning. The sooner you act, the more interest you earn – and the longer that interest has to grow.”
