You are here: Home - Retirement - Retirement planning - News -

Will your pension fund be sufficient if you live to 100?

0
Written by: Emma Lunn
18/06/2019
Workers will need a pension fund of £447,000 if they retire at 65 and live to 100, and require an income equivalent to the average UK salary, according to investment platform AJ Bell.

The chances of living to 100 may be higher than you think. A woman aged 65 today has a 7.4 per cent chance of celebrating their 100th birthday, while men have a 4.7 per cent chance. The odds increase significantly for future generations with a 25-year-old woman having a 19 per cent chance of reaching 100, and a 25-year-old man 14.1 per cent.

According to government figures, 56,000 people are expected to reach 100 by 2020 – compared to just 6,000 in 2016.

Tom Selby, senior analyst at AJ Bell, said: “The pension freedoms have created huge flexibility for savers to manage their retirement plans. This flexibility comes with added responsibility and in particular millions of savers now need to manage longevity risk in a way they might not have done pre-2015.

“People who choose to transfer out of defined benefit schemes or opt for drawdown over buying an annuity therefore need to plan withdrawals carefully to make sure they remain sustainable. Younger generations in particular will need to consider the possibility their pension savings will need to last 35 years or more or they will need to retire at a later age.”

Selby said that the extent to which a withdrawal strategy is sustainable or not will depend on a number of things including overall investment returns, the timing of those returns, and inflation.

“If someone wants to retire today on a UK average salary of £28,000, if we assume they will get around £8,770 from their state pension, they will need to be aiming to generate just under £20,000 from their private pension pot,” he said, “A 65-year-old would need a pension fund of £447,000 to be able to withdraw £20,000 a year, inflation linked at 2 per cent a year and still see their pension last until age 100. However, if they delay retirement five years to age 70 the size of pension fund needed to reach age 100 would reduce to £407,000.”

The best way to ensure a comfortable retirement is to start saving early and often. To save the £447,000 required for an average salary in retirement from age 65 to 100, a 25-year-old would need to save £235 a month. The monthly figure almost doubles to £428 if you start saving at 35, and jumps to £859 a month if you delay saving into a pension until the age of 45.

Selby said: “If these amounts sound unrealistic it’s still worth saving what you can, making the most of the bonus of pension tax relief and the matched employer contribution through automatic enrolment.

“You also need to think carefully about the investment risk you want to take. Younger investors in particular should be able to take more risk than their older counterparts, giving their fund the chance to grow over time. In addition, high charges can have a seriously detrimental impact on your retirement over the long-term, so shopping around is absolutely critical.

“If people get this bit right and build a decent pension pot in the first place, it becomes much easier to make that pot last – even over a lengthy retirement.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Bargain hungry Brits warned not to get carried away on Amazon Prime Day

Amazon Prime Day offers exclusive discounts to Prime members around the world – but prices could be beaten els...
Bargain hungry Brits warned not to get carried away on Amazon Prime Day

Holidaymakers warned about mobile bill shock

Brits travelling abroad can easily rack up costs of more than £100 a day in non-EU countries due to roaming ch...
Holidaymakers warned about mobile bill shock

Car insurance premiums set to rise

The government has announced a change to the rate used to calculate the amount car insurers pay out for person...
Car insurance premiums set to rise

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week

Read previous post:
house piggy bank
New bond tackling social housing shortage pays 7%

A new investment aimed at tackling the UK’s social housing problem has launched, offering 7 per cent interest.

Close