Young adults are on course to retire with just a sixth of the funds they'd hoped to have set aside, a new survey has found.
Those aged 16 to 24 said they would like to retire with an average annual income of £64,000 a year, according to Aegon. But analysis of their saving habits suggested they are more likely to end up with just £11,000 a year.
If a young saver wanted to achieve their ideal income in retirement, they would need to set aside as much as £800 a month from the age of 20. Yet research suggested three fifths (59%) of this age group don't contribute any money to their pension pot at all at present.
Aegon UK Direct MD David Beattie said: "The findings don't paint a pretty picture for the UK's younger savers. Unrealistic expectations both in retirement income and early retirement age mean that this age bracket are set to fall well short of the retirement income they want.
"However, we must remember that younger people have different financial priorities, such as saving for a deposit on a house or paying off student debt, and this can mean putting money aside for a pension doesn't top the list. What this age group has on their side is time, but it is important this doesn't lead to complacency."
Aegon suggested together four tips to help young adults ensure they're prepared for retirement:
- Claim your free money: Firstly, if you're employed, remember there's free money out there. Many employers have a pension scheme into which they contribute money. Many people don't sign up to this, so check with your HR department
- Every little helps: Work out how much you can save each month, regardless of how small that is. Because you're young you have time on your side. £20 a month from the age of 25 could result in a pot of £24,000 by the time you retire, just think how big that pot could be if you could double or triple that contribution.
- Consider the benefit of time: The longer you save for, the more your interest is compounded meaning more money! For example, someone who starts saving £20 a month at 25 could end up with a pension pot £10,000 larger than someone who started saving the same amount at 35, despite only contributing £2,400 more
Set a goal: Most people find it easier to save when they have a goal in mind. Set a savings goal and stick to it. Aegon has launched a site to help you learn more about when you might be able to retire based on your current savings contributions, visit www.retireready.co.uk
7 ways to improve your retirement
Young 'hope for £64,000 pension but can expect £11,000'
If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.
Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.
On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.
It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.
You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.
To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.