At times like these, good news is in short supply.
Many more of us are still hale and hearty at 70. The Office for National Statistics has even discussed whether with the increase in longevity we should view 70 as the new 65.
But if we are living longer, we will have more old age to save for, and that could mean working longer to save it.
At Continuum we look why you might need to work until you are 70, and at the ways to possibly avoid it if you would rather not.
Why retirement has got more expensive
There are several reasons why we need to save more for our retirement. If we are still fit when we collect our gold watch, we will probably want to enjoy travel, spending more time with family and hobbies. This all costs money.
Historically low interest rates mean the income from pension savings has fallen to rock-bottom. A pension pot simply generates a smaller income than it used to.
You need more money for a comfortable retirement that lasts longer. But not only will the recent crash have eaten into your pension pot; it has meant interest rates have fallen even further. Low interest rates mean low annuity rates and what you thought was a decent pension pot may be less than adequate when you want to call on it.
How much do you need to retire?
Many people overestimate how much they need in retirement, thinking that they’ll spend the equivalent of their wages. In fact, you will probably need around half the final earned income to maintain your lifestyle. This is because you will probably have paid off the mortgage, will no longer be bringing up children and won’t face the cost of commuting.
According to figures from Which? Retired households spent around £27,000 a year on the basics and a few luxuries, like European holidays, hobbies and eating out. They suggest you will need more like £42,000 a year if your luxuries include long-haul trips and a new car every five years.
Of course, when you reach state retirement age, the government will help. The state pension is currently £268.50 per week for a couple, equivalent to £13,962 a year, bringing a couple halfway towards the £27,000 annual income level. The full new state pension is £175.20 per week, but not everyone gets that much – and while this will put food on the table it is not enough to fund the kind of lifestyle you might want.
So, will you have to stay at work?
If you don’t have enough in your pension pot to fund the retirement lifestyle you want when the time comes to retire, the only answer is to carry on working. Working a few extra years means more time to make contributions and for the contents to grow.
This is easier than it used to be. Up until 2011, an employer could terminate employment on the grounds of age. Many would give the final handshake at 65 or even 60. Discrimination on grounds of age is now illegal, making it easier for people of retirement age to simply carry on in a job they enjoy.
But if you are no longer enjoying the job, the thought of being forced to do it for longer is not so appealing.
So, what can you do?
You don’t have to work until you drop – if you start planning a private pension as early as possible.
Employers of all sizes can fail, and you probably should not rely on an occupational pension scheme. The solution for most of us is to set up a private pension and make saving a priority. It is a very rewarding investment, thanks to the generous tax relief it attracts.
How much you will need to save will depend on your age, and how much you can expect from your work pension and state pension together. There are two important things to be aware of. The first is that the sooner you start investing in your future, the longer your money will have to grow, and the less it will cost each month to build up the sum you need.
The second is that expert help is essential. At Continuum, we will be very pleased to provide it.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of your pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances
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