My daughter has an important decision to make. She’s choosing her GCSE subjects, which will have a knock-on effect for her A-level subjects and, if she decides to go, what she reads at university. And that could dictate her future career and standard of living. But I’m not sure she’s thinking that far ahead.
If the results of a recent study are to be believed, my daughter isn’t alone. When it comes to thinking ahead, especially making decisions that affect our future wealth, we’re just not very good at it. The study found that baby boomers’ (over-55s) biggest financial regret is not saving for retirement earlier.
Saving for retirement is on the up
Aviva’s own Working Lives report reveals that the number of people who say they can’t afford to save into a pension dropped by 10% in the last year, suggesting that saving for retirement is becoming more of a consideration. Perhaps that’s down to the government’s auto-enrolment scheme, which requires employers to auto-enrol eligible workers into a workplace pension. Not to mention the celeb-fuelled campaign featuring Theo Paphitis from Dragon’s Den.
It’s all well and good, but here’s the rub. Until 2017, the minimum total contribution you’d have to pay into one of these workplace pensions is only 2% of your salary per year (that’s the combined amount you and your employer pay in). Yes, it’s going up to 5% in 2017, and again to 8% in 2018, but even then, will it be enough?
Retirement now lasts up to 20 or even 30 years, which means you need more money to pay for it. Even if, unlike the baby boomers, you start saving early, I’m not sure 2% is going to cut it. I worry that auto-enrolment will promote a false sense of security: people thinking they’re saving enough for a comfortable retirement because they’re paying the minimum amount – as set by government – into a pension. When, in reality, they may need a whole lot more.
How to make the most of your retirement savings
If you’re approaching retirement and you started saving early, you could be looking forward to a comfortable retirement. But if you didn’t, or you only paid in a low percentage of your salary, Three simple steps to a better retirement income could help you make the most of what you’ve got. It explains how to shop around for a retirement income, how to get personalised annuity quotes, and the importance of getting the right advice, guidance and support. I’d also recommend speaking to a financial adviser about your options.
Incidentally, baby boomers’ second biggest financial regret is running up debt on credit. I’d better have a word with my daughter about that too…
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