Report reveals the death of retirement

If today's workers want to retire and have the kind of lifestyle that current pensioners are enjoying - then they'll need to work into their late 70s at the very least - and millions of people will never be able to stop working.

Never retire

The Death of Retirement report by Royal London came to the conclusion that millions of people will never be able to retire, if they want to be comfortable in their old age.

It worked on the basis that workers contribute 8% of their salary - the minimum level that the government has set as part of the auto-enrolment system. It calculated how long people would have to work while saving at this level in order to earn two thirds of their pre-retirement income (assuming they want to protect it from inflation and provide for a surviving spouse).

It found that even someone who started working and saving at this rate at the age of 22 would need to work to the age of 77 to secure this kind of pension.

Even if they settled for the somewhat less comfortable position of earning half their pre-retirement income, they would need to stay in work until they hit the age of 71.

Even worse

Of course, in either situation, if they took time out to have children or raise a family, they would have to postpone retirement for as many years as they were out of work and halted pension contributions. It would mean someone working from the age of 22 and taking five years out to have a family, would be able to retire at 76 on half their pre-retirement income or 82 on two-thirds of their salary.

If they opt out of the pension in the early years because they are on a low income and need the cash for student loans or the cost of living, then they will continue to push back their potential retirement age. It's easy to see how someone could be expected to work until their mid-80s.

Royal London Director of Policy Steve Webb said: "Getting millions more people saving through automatic enrolment is a huge step forward, but many face a cruel disappointment if they think that current minimum contribution levels will deliver them the sort of retirement they are looking for. Without significant increases in contributions, we could be witnessing the death of retirement."

What can we do?

The report then looked at the impact of contributing more than the bare minimum. If you increase the annual contributions to 20% of salary - taking into account the fact that your employer will be making some of these contributions - you could retire on two-thirds of your pre-retirement salary - and at a more traditional retirement age. Those who are happy to retire on half their salary could get by with annual contributions of 11% of pay.

It's always worth checking your employment contract, and working out what your employer will do to help. Some offer the government basic in terms of matching contributions, but others are far more generous, so that the more cash you put into a pension, the more they will add. That makes a 20% total contribution far less of a mountain to climb.

For those who really cannot afford to put so much of their salary away for the future, it's important to do the maths. Start with what you need to live on in retirement, and calculate how much you need to save in order to generate that income.

Bear in mind that a pension is not your only source of income in retirement. You may well have separate savings, a property that you might be happy to downsize, or an inheritance you are expecting in the years leading up to retirement. Take your time to add all of this into the equation - although be careful not to add in any inheritance that you cannot guarantee.

You can then work out just how long you need to be bringing some sort of income in for. If you are looking at working into your 80s, it doesn't have to be the end of the world if you have planned a working life that's not a hardship to maintain later in life. It may be possible, for example, to develop your skills and hobbies so that you can continue working part time in your 70s and 80s - doing what you'd be doing in retirement anyway. Those who enjoy gardening, woodworking and DIY have a ready-made business on their hands, while those who are happy caring for children and grandchildren could consider making a second career out of it.

But what do you think? Will you ever be able to afford to retire? Let us know in the comments.