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Forget State Pension poverty, here’s how I’ve changed my retirement focus

Older members of the baby boomer generation are estimated to own more than a third of the country’s wealth, and one in five over the age of 65 has a total household wealth of more than £1m.

How hard is it becoming for today’s young people to emulate their forebears, and for them to get on the housing ladder? For me the question should be different, and away from the UK’s obsession with house ownership and that popular climbing apparatus.

A major part of the cash these oldies apparently enjoy is locked up in their homes, and they could only get their hands on it by making themselves homeless. As long as you can’t sell your home because you need to live in it, its market value has little real meaning. In fact, the value of these homes is probably more likely to benefit their younger descendants who can readily sell them when they inherit them.

Wealthy poverty

This all brings me to what seems to be a uniquely British way of living in poverty – dedicating every penny you possibly can to climbing the greasy housing ladder. I remember seeking mortgage advice many years ago, and it was focused on working out the maximum amount I could afford to borrow, and that pretty much seemed to be the standard approach.

On the assumption that house prices would always appreciate and that a home is an investment too, that might have made some sense. But it always did ignore the illiquidity of bricks and mortar and the need for liquid investments to fund retirement.

And those days are surely coming to an end, as I think they must, as house prices are already out of so many people’s reach and simply can not keep rising ahead of earnings forever.

No, I say we should separate housing needs from investment, budget our housing costs based on what we actually need (in the same way we do with all of the other things we need in life), and put our investing cash in top UK shares that generate actual new wealth and don’t need an ever-inflating bubble to make a profit.

Budget shift

That’s a psychological shift that I think is needed, but there are other approaches to money that I reckon can make a big difference to our retirement prospects.

The main one is closely related, and it concerns the way so many people go about calculating their monthly budget. Many people sensibly keep a budget spreadsheet, track their regular monthly outgoings like bills, travel, etc., keep an estimate of irregular necessities like clothing, insurance, and then end up with a bottom line showing their left-over disposable income.

And I reckon that’s a mistake, seeing what’s left as disposable, and it leads people to dispose of it unnecessarily.

Investment first

What if, instead, you insert a new line at the head of your monthly necessity outgoings called Pension investments, and set it at, say, 20% of your take-home pay? Seeing investing for your retirement as a necessity, rather than as something optional that you can contribute to if there’s any disposable income left at the end of the month, could provide a big boost to your State Pension.

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Views expressed 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.