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Are you underestimating how much you will need for retirement?

Saving up for retirement. It’s not one of the subjects that sets our pulses racing, is it? It’s depressing to think that every penny diverted from your pay packet and stashed into your pension fund could be better spent on that new car, designer handbag, the once-in-a-lifetime holiday. Live for today, right?

Well, perhaps not. There’s a mounting stack of evidence to suggest that we aren’t in fact taking the matter seriously enough, leaving us in danger of living on the bread line when we finally decide to retire.

Recent respondents to Schroders’ ‘Global Investor Study 2018’ said that they believe they will need to spend on average around 34% of their retirement income on basic living expenses such as food, accommodation and clothes.

In reality, though, retirees actually have to spend closer to 50% of their post-work income on such rudimentary items. Many people are clearly setting themselves up for a fall.

The study, which examined the views of 22,000 people across 30 countries, found that 15% of those already in retirement do not have enough money to live comfortably.

Only 42% of respondents said that their income levels are high enough to provide a comfortable retirement. The remaining 43% said that a little more income would be helpful.


Commenting on the results, Lesley-Ann Morgan, Global Head of Retirement at Schroders, said: “There is a real danger that people globally are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement, particularly in the current environment of low returns and increasing inflation.”

Morgan added: “To avoid facing challenging financial circumstances on retirement, they need to recognise the need to start saving as much and as early as possible.”

The situation is particularly precarious for those aged 55 or over, Schroders’ report suggested. Respondents in this group said that they would need an average of 74% of their current income in order to enjoy a comfortable retirement, meaning many late savers will likely be in for a shock.

“Leaving retirement saving until you are nearing your 50s and 60s is likely to be too late to make up a savings gap,” Morgan said.

Don’t rely on the State Pension

Investors in the UK really need to get to grips on whether or not they are stashing enough away for retirement, given the measly size of the State Pension. I don’t know about you but I’d find it almost impossible to live off the £164.35 per week that the government currently doles out to pensioners.

It doesn’t take an investing genius to realise that the sooner you grasp the nettle, the better. There’s no shortage of investment guides from experts like The Motley Fool that can help you in your quest to avoid retiring in poverty, either. Investing that little extra each month may restrict your ability to buy the things you love, but the peace of mind you can get by investing early and properly is something that money can’t buy.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.