Two-fifths of younger adults plan to retire by age 60, according to Royal London.
The research carried out with 4,000 adults in the UK, shows an early retirement needs to factor in the amount of savings required to fund a much longer retirement, yet seven in ten (73%) under 35s admit they haven’t worked out how much they will need to live on when they retire.
According to the benchmark for the amount of money needed to achieve various living standards in retirement set by research from the Pensions and Lifetime Savings Association (PLSA), a single person will need, excluding housing costs, £13,000 per year to maintain a minimal quality of living, £233,000 for a moderate standard, and £373,000 for a pleasant one.
The Royal London research found that people under the age of 35 anticipate needing an average of £1,086 per month in retirement. This sum would offer a minimal level of living and be covered mainly by the State Pension, which is now worth £886 per month.
In addition, significant pension savings are required for early retirement, and housing costs, which are not considered in PLSA figures, can significantly affect monthly expenses. This makes estimating lifelong income needs difficult, especially for those under 35, whose expected retirement income is likely to be significantly lower than their income at age 60.
Royal London pensions expert Clare Moffat says: “Being so far away from retirement, the younger generation have an optimistic view of when they’ll be able to give up work but there is a significant gap between expectations and retirement reality. Two-fifths of younger adults do not plan to work beyond 60 years of age, even though they won’t qualify for a State Pension until much later, and that poses serious questions about how they will fund the type of lifestyle they want to enjoy when they’re older.
“While the thought of early retirement may be appealing, it also comes with a note of caution as it can carry significant risk. The more of your pension pot you take earlier in your retirement, the less there’s left to maintain lifestyle in later years.
“However, savers in their 20s and 30s have a couple of significant advantages on their side – time and compounding of their investments, which potentially enables small amounts of money to grow into larger sums over time. Early planning and setting realistic timescales and rates of pension saving is key, that way savings will accumulate earlier, building wealth over a longer period of time, and giving ambitious retirement goals a better chance of being met.”
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