A recent UK study on the financial habits of those aged 55 and over revealed some interesting statistics. For example, 50% of people in this age bracket play the lottery, while 54% own Premium Bonds. It also found 18% were still paying off their mortgage.
However, perhaps the most interesting statistic from the SunLife study was that, on average, those aged 55 and over believe they need an extra £184,484 on top of their current savings and pensions to live comfortably in retirement.
Huge savings gap
Clearly, that’s a significant savings gap. Yet I’m not exactly surprised by this figure. For a start, retirement savings across the UK, in general, are very low. For instance, a recent study by Aegon found the average 55 year-old Briton has retirement savings of just £105,000. Another study by Skipton Building Society found one in 10 UK adults over the age of 55 don’t have a single penny saved for their future at all.
Meanwhile, the cost of a comfortable retirement is rising rapidly. Given that average life expectancy is rising (you could live for 30+ years after retiring), the cost of living is increasing, and the State Pension (the income the UK government pays to those in retirement) is abysmally low at just £8,767 per year, you need to have a decent sum of money stashed away to be able to retire without money worries. Some experts believe the average person in the UK requires pension savings of £260,000-£300,000 to live a comfortable lifestyle in retirement these days.
So, what can those who are approaching retirement do to fill the savings gap?
Boosting your retirement savings
In my view, there are three key things to do if you’re aged 55+ and looking to boost to your retirement savings. Firstly, open a tax-efficient savings vehicle such as a Stocks & Shares ISA, or a Self-Invested Personal Pension (SIPP) and set up a regular savings plan so that you put money away for retirement on a regular basis.
Both of these savings vehicles will shelter your gains from the taxman, while the SIPP comes with the added benefit of tax relief (the government will top up your contributions).
Secondly, consider increasing contributions into your workplace pension. The more you contribute, the more tax relief you’ll receive and the faster your pension savings will grow. Additionally, make sure you’re taking advantage of any ‘contribution-matching’ schemes. Some employers will agree to pay more into your pension pot if you agree to increase your contributions to the scheme too.
Finally, make sure you’re invested in the right assets. If you’re looking to grow your wealth, it’s probably a good idea to have exposure to stock market-based investments such as shares and funds. The reason for this is that these assets tend to outperform cash and bonds by a wide margin over the long term, meaning they’re much more effective at boosting wealth.
But if all your savings are in cash, or ‘low-risk’ funds within your pension, you may struggle to close that savings gap.
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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.