Retirement income reality and expectations

Saving for later life income is a major part of future planning. A traditional way to do this is with a pension, but other forms of investments are also commonly used. There’s no right or wrong way to save, but careful planning is essential otherwise you may not have the income you had hoped for. A report carried out by Old Mutual Wealth and YouGov, “Retirement Income Uncovered”, found that the income gap between what current retirees receive and what pre-retirees expect is £4,700.

The subjective nature of how much each person will need in retirement can make saving an appropriate amount difficult, so it can be beneficial to have a plan. You should know, for example, what your current outgoings are and if they are likely to change – will you have a mortgage, children living at home or car payments to make? Typically outgoings are smaller in retirement and so a lower income may be sufficient, although it’s still important to remember that the money will probably need to last a long time. Pre-retirees expect to retire around 63 or 64 years of age and live to about 84, so their fund would need to last up to 21 years.

Of current retirees, those who claim to be satisfied with their income level earn an average of 47% of their pre-retirement income, compared to those with an average of 31% of their pre-retirement income, who are unsatisfied. However, there is a stark difference between what current retirees earn and what pre-retirees expect:

Gender

There is a gender gap when it comes to how much money retirees have or expect to have. The average income in retirement for men is £22,600, compared to £15,300 for women – a difference of over £7,000. The positive news is that pre-retirees expect this to shrink to £4,500, with women hoping to receive £21,000 and men £25,500. There could be a number of reasons for the gap, but much of it may be because men are almost twice as likely to have a goal for retirement than women are, which in turn may explain why just 12% of men are dissatisfied when they stop working, compared to 19% of women.

The importance of planning

There is a notable difference in income between people who have an income target and those who don’t. The average income for people without an income target was £17,500 a year, but this increased to £20,800 for those who saw a financial adviser at least once, and £26,000 for people who had both a target and an adviser. Almost three-quarters of people with an income goal are satisfied with their income, while over half without one are dissatisfied.

However, it was also found that income sources are becoming more diverse rather than relying on pensions. For example, almost a third of pre-retirees expect to have a part-time job, which is something just 11% of retirees currently have. This is not always because the money is essential, though – some want to try something new, while others want to maintain the social interaction or just keep busy:

There is also an increase in the amount of people who expect to downsize; just 2% of retirees did so, but 15% of pre-retirees plan to.

People’s attitudes around later life income are changing, as the following table shows:

However, there is still a worrying lack of comprehension around pensions; even half of people who have already retired admit to a poor understanding. Despite all the mainstream attention of pensions over the past year, just 17% of people have a high understanding of income drawdown. Knowledge of financial products does increase for people who have seen a financial adviser though, which reinforces the importance of seeking advice.

Do you have a plan or income goal for retirement? Let us know with a comment below.

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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