Savers’ expectations for the cost of retirement are much lower than how much they’ll actually need, according to investment management firm Schroders.
Its study, which surveyed over 20,000 people globally – including 1,000 in the UK, found that savers believe living costs would account for 38% of their annual outgoings in retirement. But those already retired say that living costs actually account for 53% of their outgoings on average.
This means there is a 15% shortfall between expectations and reality, which could lead to people saving too little for retirement. Schroders warns this could lead to a potential income shock for the newly-retired.
It found that workers will need an income equivalent to 66% of their current salary to afford to live comfortably in retirement. But those already in retirement say the actual amount of income they earn is equivalent to just 53% of their salary. Only half (52%) of retirees say that this is enough for them to live on comfortably.
Lesley-Ann Morgan, head of retirement at Schroders, comments: “There is a real danger that people globally are underestimating their basic living expenses and the level of income they will need to live comfortably in retirement, particularly in the current environment of low returns and increasing inflation.
“There is no magic wand for savers. To avoid facing challenging financial circumstances on retirement, they need to recognise the need to start saving as much and as early as possible.
“Leaving retirement saving until you are nearing your 50s and 60s is likely to be too late to make up a savings gap.”