Picture your retirement.
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You might see yourself running around after grandkids, experiencing the sights and sounds of exciting new destinations around the world, or you may just be enjoying some well-deserved relaxation.
But whatever you envision, how old do you think you’ll be when it comes to fruition?
According to research instigated by pension specialist Royal London1, 38% of respondents under 35 years old expect to retire by age 60, predicting that just over £1,000 per month will be enough to see them through.
But how realistic is this expectation?
Current Retirement Living Standards
Though it’s true that £1,086 per month (mostly covered by your State Pension) would achieve a minimum standard of living according to current Retirement Living Standards,2 the key word here is “minimum”. This figure would generally not allow you to pursue hobbies and interests, go on holidays, or have any significant disposable income.
This also assumes you have no outstanding debts. For example, if you still have a mortgage, this will continue to eat away a big chunk of your regular outgoings. And if we were to see more interest rate increases – similar to the ones we experienced throughout 2022 – that bite could soon gobble up your retirement income.
The bottom line is that with this minimum income, you could pay your bills, keep yourself fed and watered, and have a little extra in your pocket for special occasions. But when you’ve worked so hard to get to this point, wouldn’t it feel better to relax the purse strings, even just a little and really enjoy your golden years?
Realistic Expectations for Retirement
The idea of retiring at 60 makes sense when we look at older generations.
In Aberdeen (home of SpringGen’s HQ), many young people have seen their parents and grandparents benefit from the boom of the oil and gas industry, where they have been able to retire at 55, receive a sizeable Final Salary Pension, and live off a generous and continuous income that will last them for the rest of their days. The State Pension Age was also lower for previous generations, so retiring by 60 may not have seemed that unrealistic.
However, times have changed. The ever-increasing state pension age and elevated living costs don’t align with millennial and Gen Z hopes to retire by age 60. Instead, if younger generations want to start looking toward a brighter financial future, the time to act is now.
Reviewing your Pension
Individuals in their 20s and 30s should look more closely at how they can begin building their wealth. This can be achieved in small ways, for instance, by taking a closer look at their pension investments.
By this point, having a pension is not the issue, as most UK employees are auto-enrolled onto a plan the minute they start setting up their desk space at a new job. However, take a look at the funds available via your workplace pension scheme and consider moving away from the default ‘Lifestyle Funds’ designed to de-scale in risk the closer you get to retirement. This could reduce your potential growth and is a minor tweak that could lead to more significant returns.
Increasing your workplace pension contribution or setting money aside through an ISA can also be great ways to grow your pension pot. We appreciate that money may be tight right now, especially with many people re-mortgaging their homes or seeing a big jump in their monthly repayments. But even a small addition to your retirement income early on in your career will have a significant impact on the compound interest you earn, so it’s worth considering whether you can sacrifice any spend in other areas.
Is retirement by 60 possible?
In summary, if millennials and Gen Z workers wish to retire by age 60 and are intent on leaving the 9-5 behind as early as possible, there are steps you can take to help make it happen.
The first step is determining your current situation and how that aligns with your retirement aspirations. Our new Money Insights Calculator can give you a rough idea of where you are and where you can get to based on your current circumstances.
Secondly, Retirement Living Standards is one website that provides fantastic illustrations of what a minimum, moderate and comfortable retirement might look like, giving you a target amount to strive for as you begin to build your wealth.
And the last step? Get started! By planning for your future early, you are giving yourself more time for compound growth, and you would be amazed at how far your money will go when given a longer time frame.
SpringGen Advice Limited (FCA no: 928966) is an appointed representative of Acumen Financial Planning (FCA no: 218745), authorised and regulated by the Financial Conduct Authority.