This is how you'll rescue your retirement

ElderlyYesterday's annual Scottish Widows Pensions Report made gloomy reading. As I've written before, the combination of inadequate savings, poor investment returns and low annuity rates has resulted in millions of pension savers looking set for a penurious old age.

And looking at the report, it's difficult to trump the words of Toby Strauss, group director of insurance at Lloyds Banking Group (LSE: LLOY), which these days owns Scottish Widows:
"After years of blood, sweat and tears, the UK pensions market is about to reach its moment of truth. A stark difference remains between what people expect they need to save, and the reality which would secure a comfortable retirement."

Consumers' confidence that their pension will deliver that comfortable retirement has never been worse, he continues, and retirement savings have now hit a record low.

Nor is this mere idle rhetoric. Scottish Widows' annual report is reckoned to be the UK's most authoritative survey of consumers' preparation for retirement, and since 2005 the firm has surveyed and scrutinised the views of over 40,000 people.

Stark statistics
Let's briefly look at the picture uncovered by the survey:
  • Less than half of pension savers, just 46%, are putting aside enough for their retirement -- a number that's five percentage points down on last year, and a fall of eight percentage points from 2009.
  • Worryingly, over one in five of us are putting nothing aside for later life -- a proportion that has increased this year.
  • Despite retirement savings plummeting, the nation's aspirations for pension income has gone up. At age 70, we want to be living on £24,500 -- compared to £24,300 as a stated aspiration last year.
  • Based on this year's new low average savings levels, an average saver retiring at 65 would get just half the income that they feel they need, with an average pension pot of £150,000 giving an annual pension of £5,700 in today's terms.
Shocking, isn't it? And in my book, Tom McPhail, the ever-amiable head of pensions research at Hargreaves Lansdown summarises the situation quite nicely:

"The message that we should be putting in front of every adult of working age is that it pays to save, and that any delay just makes the hill steeper to climb."

Climbing that hill
So there we have it. Most people have inadequate retirement savings -- and the hill that they must climb to get to the point where a comfortable retirement looks assured is getting steeper with every passing year.

What to do? First, of course, get the basics right.
  • Save in tax-advantaged accounts -- a SIPP, stakeholder or ISA, as your individual circumstances and inclinations dictate.
  • Save regularly, top up when you can and increase your contributions as you get older.
  • Keep costs down by opting for low-cost wrappers, and avoiding investment products with high charges.
Power your portfolio
But more to the point -- in what assets, precisely, should you invest?

Conventional wisdom, for instance, speaks of splitting your investments between equities and gilts. Gilts? In today's world, as Fool writer Cliff D'Arcy wrote last week, gilt prices can only go one way.

Cash? Don't make me laugh. Property? Ditto.

Which leaves a portfolio of shares. And hopefully, bearing in mind the ever-steepening hill that you've got to climb in order to catch up, that portfolio will be packed with shares carefully chosen for their potential to outperform.

Your retirement, in short, is down to you. Don't delay -- start rescuing it today.

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