A generation gap is emerging when it comes to expectations of income in retirement.
According to new research by Prudential, the next generation of retirees expect to retire on around £14,000 a year compared with this year’s retirees who expect an income of £17,000.
As a result, seven in ten anticipate a lower standard of living in retirement than their predecessors.
One reason for this lower income expectation in retirement is that nearly half of next generation retirees have, at some point in their working lives, taken a break from making pension contributions.
Prudential’s study found that people aged between 45 and 55 now expect to work until they are 65 years old.
This age group estimate that their average annual retirement income will be £14,000 a year when they eventually stop working and retire.
In contrast, the figures from Prudential’s study of the ‘Class of 2015’ (those retirees planning to retire this year) show an expected average annual income of £17,000.
This leaves a generation gap in retirement income of £3,000 a year.
Only 27% of the next generation of retirees believe their pension will provide them with sufficient income to enjoy what they consider to be a comfortable life in retirement.
This compares with half of those planning to retire this year.
The research from Prudential also found that the generation gap in retirement income comes as no surprise to the next generation of retirees.
Seven in ten of those aged 45 to 55 said they expect to have a lower standard of living than people currently in retirement, while only 6% expect their standard of living to be better.
One reason for this generation gap in retirement income might be taking breaks from making pension contributions.
Almost half of the next generation of retirees have put their pension contributions on hold at some point during their working life.
Prudential found that more than one in 10 next generation retirees have taken a break that lasted more than a decade.
A further 20% have stopped making contributions for between three and 10 years.
Securing a decent level of income in retirement doesn’t happen by accident.
With rising life expectancy, lower investment yields and a higher cost of living, it takes the combination of hard work, consistency and a decent Financial Plan to have the money that will secure the life you want in retirement.
We think this new research from Prudential shows only the tip of the falling retirement income iceberg; next generation retirees will be worse off on average than current retirees, and this problem will only get worse in the future.
Engaging with a Financial Planner to create and manage a plan for your retirement is the best way to avoid being a statistic in an insurance company state of retirement report.
