Do you have enough money in your pension to see you through retirement? Research indicates there’s a very real risk that UK retirees will be short of more than a decade’s worth of money.

As we start making withdrawals from a pension and even when saving into one, it’s crucial to think about the kind of lifestyle it’ll afford and how long for. Without this vital bit of information, there’s a chance you’ll be left with a shortfall that could mean a retirement that promised much leads to disappointment or struggles in later years.

Measuring the gap between savings and lifestyle

A recently published report from the World Economic Forum set out to calculate how financially secure retirement will be. It notes, pension systems around the world are facing the common problem of trying to deliver existing promises whilst life expectancy has increased. It’s a challenge that is expected to become even more significant over the coming decades. 

The findings indicate that the average UK woman will run out of money 12.6 years before she dies. For men, it’s 10.3 years. With a vital source of income drying up a full decade before passing away, some retirees could face struggling to get by on the State Pension alone. It could mean lifestyles need to be adjusted if dreams are to be realised.

Between 2015 and 2050, the report predicts the gap will grow even further, suggesting struggles are ahead for generation X and millennials. In 2015, it was estimated there was an $8 trillion (£6.2 trillion) shortfall in UK pensions, rising by 4% annually to $33 trillion (£25.8 trillion) by mid-century.

The risk of running out of money later in retirement is particularly troubling when you consider the potential need for care. Longer lives mean more people are requiring some form of support, from home visits to moving into a residential home. Most retirees will be required to pay at least a portion of care costs themselves until total assets are depleted to £23,250.

On top of this, the risk of running out of money is further compounded by the hope of retiring early. Research suggests that two in five savers hope to retire before they reach the age of 65. Given that the State Pension age is already steadily increasing, it’s a dream that could place further pressure on finances. If you do want to retire before the traditional age, it’s crucial to think about how those extra years will affect the savings earmarked for retirement.

How much is enough to retire?

This is a question that often comes up when people start thinking about retiring. However, there’s no straightforward answer, it’s very subjective.

Research indicates that covering the basics in retirement, such as food and utility bills, along with a few extras like eating out and entertainment, will set retirees back by almost £230 each week. Over the course of the year, the figure mounts up to more than £11,830, 35% more than the State Pension provides. The findings suggest that retirees need their personal provisions to pay out a minimum of £3,062 a year. That may not sound like a lot, but when you think retirement can last 30 or 40 years, it may be easier than you think to run out of money. When you factor in the luxuries you might be looking forward to in retirement, such as holidays, the risk rises even more.

As you think about how your own pensions will pay for retirement, it’s important to consider the type of lifestyle you hope to achieve. It’ll have a direct impact on how much you should be saving whilst working and whether you’re at risk of falling short.

• When paying into a pension: Taking the time to consider how much you’ll need to fund retirement whilst you’re still paying into a pension puts you in a better position to secure the lifestyle you want. The further ahead you start to think about this, the better. Uncovering a shortfall with a decade still to go gives you an opportunity to increase contributions where necessary. Here it is crucial to consider how long you’ll spend in retirement to calculate your target sum as accurately as possible.

• When taking an income from savings: Changes to how we access pensions in 2015 means more retirees are now opting to withdraw from their pensions in a flexible way. The ability to increase and decrease withdrawals can be valuable. However, you need to carefully balance the amount you’re taking out with how long it needs to support you for. Taking sums that are unsustainable now may leave you struggling in the future.

If you’re worried about how your retirement savings will match up to aspirations, please contact us. We’re here to help you understand how long provisions will last with your lifestyle in mind.

Please note: A pension is a long-term investment not normally accessible before age 55. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.