As a nation, we’re living longer. Most of us are aware of that, of course: greater longevity is regularly cited as one of the reasons behind tumbling annuity rates and increased retirement ages. Just last week, for instance, the Office for National Statistics (ONS) said that life expectancy in Britain, for both men and women, had reached its highest level on record.
A longer retirement, of course, ought to be good news. But for some people, it will simply mean more time to endure an impoverished old age: scrimping and saving, and generally failing to enjoy the standard of living in retirement that they had hoped for.
Which, to put it mildly, isn’t quite such good news. So are you heading towards a champagne-and-Waitrose retirement — or one characterised by homebrew-and-Lidl? Here are three pointers that will give you a clue.
1) Your earnings barely keep pace with your lifestyle
We all know them, of course. The people down the pub, or the golf course, who splash the cash, have exotic holidays and enjoy the latest techno-gadgetry.
It seems a great way to live — but it points the way to a rocky retirement.
How so? First, that money could be stolen. Not from an employer or other third party, of course, but stolen from their future selves. That’s right: the money that they should be putting aside for retirement tomorrow is instead being spent to fund a lavish lifestyle today.
Second, that lavish lifestyle today means an even more abrupt transition into retirement tomorrow. Which not everyone manages successfully — especially after decades of living well. Have you seen the figures on the number of over-65s in serious debt? I have, and it’s not pretty.
2) You’re saving too little for retirement
I’m a pragmatist, here. Newspapers’ financial pages are always full of supposed experts, telling us all that we’re saving too little for retirement.
But how do they define ‘too little’? Generally, they use a percentage of your income, perhaps adjusted by age. And — surprise, surprise — many people see that they’re saving below this level.
The trouble is, our ability to save varies dramatically over time. The arrival of children, a big new mortgage, a radical change of career — they can all send savings plans awry. And after all, none of us can save money that we haven’t got.
So I prefer a different measure. And it’s this: do you feel guilty about how little you’re saving for retirement? Do you feel that you could save more, and that it’s only apathy that’s holding you back?
In which case, you’re probably saving too little.
3) Your retirement horizon is too short
None of us know when we’re going to die. But collectively, our views of how long our pension savings must last tend to be too short. We make the mistake of ‘anchoring’ our anticipated lifespans around those of the last couple of generations. But times have changed.
“I won’t see 80,” a friend told me the other night. Another, in his thirties, doesn’t expect to see 70. But the odds, of course, are that they will — and many more years besides.
Because average life expectancy is well over 80, and climbing: according to the ONS, a man aged 65 retiring today can expect to live for 18.2 years, a 40% increase in the 30 years to 2012. And a 65‑year‑old woman retiring today can expect a further 20.7 years, a 25% increase. Indeed, according to the Department for Work and Pensions, nearly one in five of us will live to see our 100th birthday.
But will our pension savings last as long as we do? It’s a worrying thought.
Bank on dividends
Which is one reason why savvy pension savers are increasingly looking at a retirement bolstered by income from decent, dividend-paying shares. It’s what I’m doing myself, for instance, building up a steady stream of income from companies such as Royal Dutch Shell, GlaxoSmithKline and Unilever.
Handily, too, it’s a strategy that doesn’t necessarily lock your retirement savings away in pension wrappers — it’s perfectly possible to use ISAs, or even just ordinary brokerage accounts.
And better still, with shares held directly, there’s no fund manager to pay, or hefty administration fees.
But which shares to buy? And which companies have the makings of a decent, dividend-paying share that will power your retirement for 10, 20 or 30 years?
