We are living longer; in September the Office for National Statistics revealed boy babies born today will live to age 79.3 on average and girls to 82.9, an increase of 3.7 and 4.2 weeks respectively.
This is great news! But if they stop work at 65 that’s at least 15 years and maybe closer to two decades they need to pay for with their pension.
How much you will need for retirement will depend on the lifestyle you want to lead – fast cars and cruises on the Med, or a caravan for holidays in the Lake District. Both are fine, but come with different price tags.
You should aim for an income in retirement of two-thirds what you had while working, according to the Department for Work and Pensions (DWP). However data by online pension provider PensionBee found all savers are undersaving.
PensionBee analysed the habits of over 13,500 consumers, looking at how much people were putting away, but also the difference saving just a bit more could have on their final pot. And it was dramatic.
It found on average savers in their forties are the most prepared for retirement, and are on their way to building a pension pot expected to be worth £87,203 by the age of 65, an amount significantly higher than savers of all other ages. But spread over roughly 20 years in retirement that would give them just £4,360 a year to live on in cash terms.
The good news is that between a quarter and a third of PensionBee savers by age group are already making extra contributions into their retirement pots. But what if this desire to save more could be pushed just a little bit further?
PensionBee calculated the difference paying in an extra £100 a month could make to the average UK saver’s pension in the long-term. It discovered that average savers across all age groups would be considerably better off, with those in their forties building an expected pot at retirement of £118,640 – over £30,000 more.
Those aged under thirty, who benefit from having the longest time to save before retirement, would make the greatest improvement – it would almost double their expected pots to £124,287.
By contributing just an extra £100 per month, those in their thirties could add around £44,000 to their pots, totalling £124,853, while those aged fifty and over could add around £15,000, bringing their expected pots up to £94,256.
Almost everyone who is in work is already saving into a pension set up by their employer, who must pay in at least 3% of your salary and you add 5%. But studies have shown this minimum is not enough – many experts say at least 15% in total is needed.
Adding just £3.20 a day, every month, into your pension, can open up a whole new set of possibilities for fun in retirement and make the most of the amazing gift of living longer.
Laura Miller is a freelance financial journalist.