Retiring five years later could boost British workers’ pension income by a staggering two thirds according to the latest data, after news that thousands of people fear running out of money in old age.
Those approaching their 65th birthday could increase their monthly income by more than £300 a month based on typical pension savings and income levels, according to Aegon, by deferring their retirement and continuing to pay into a pension policy until the age of 70.
On average, those aged between 55 and 64 who were contributing to a pension were paying £355 in a month, and had a total fund of about £105,500, which may produce a monthly income of around £457 for the rest of their lives (based on a 4 per cent annual net return on their investments and other factors).
Work until aged 68 and that fund would be worth about £131,000 and could produce a monthly income of around £620. But work until aged 70, and the fund would be worth just under £152,000, which could provide a monthly income of around £770 – a 67 per cent increase.
And, hit by the move away from generous defined benefit workplace schemes, uncertainty about the future of the state pension and changes in working patterns, thousands of people have decided to do just that, the pension provider has found.
In fact, the number of over-65s in work has doubled in the last 30 years, to 10 per cent, with half the population now expecting to have to work past state pension age in a bid to have enough to live on in any semblance of comfort.
“Those of working age today are waking up to the likelihood they’ll not retire at as early an age as their parents, and are no longer picturing state pension age as the defining ‘retirement moment’ at which they automatically leave the workforce,” Steven Cameron, pensions director at Aegon, said.
“For some, the decision to work on past ‘traditional’ retirement age will be a lifestyle choice, but for others an inadequate pension pot may make it a necessity.”
The figures follow news that retirees are seriously concerned that they will run out of money. More than a third of retirees are worried their cash will dry up before they die and a quarter say they don’t think they have enough money in their pensions to cover their retirement, a study by Sunlife found last week.
It’s an understandable concern bearing in mind that life expectancy for a 65-year-old woman is 85 and for a 65-year-old man is 83, up two years from ten years ago, the Office for National Statistics recently found. It means Britons will have 18 to 20 years of their lives to fund after retirement.
The new normal
But while the expectation shift is a difficult one for those who had been led to believe their future held a comfortable retirement from the age of around 60, younger adults are increasingly embracing the practice of longer working.
Just a fifth of the current working population will have stopped by the time they reach state pension age, including those who retire as soon as they hit that all important birthday.
The younger working population are particularly comfortable with the idea that work will not end at age 65. Nearly a third of millennials expect they will work full time for as long as they are able, a quarter will continue working part time and just 3 per cent expect to stop working upon reaching state pension age.
How much do I need to save?
The issue isn’t helped by the fact that few people are confident they know how much money they’ll need to retire with.
Most financial advisers recommend putting away between 10 and 15 per cent of your salary starting in your 20s – a challenging proposition in light of student debt and ever-increasing property deposits.
According to consumer group Which?, the assumption that our costs fall across the board when we get older is the wrong one. While groceries, every day travel and other costs may well fall a little, you’re likely to spend more on healthcare and insurance, for example.
Retired households spend about £2,200 a month, or around £26,000 a year on basic costs like food and utilities, as well as a few added extras like European holidays, a hobby or two and eating out.
That, will require an index-linked joint life annuity of about £370,000 or £210,000 in an initial defined contribution pension pot, as well as your state pension.
If you’re hoping for a new car every five years, long-haul travel and other luxuries, you’ll need around £39,000 a year.
And that, its calculations suggest, would cost you a cool £1m in savings.
To find out what state pension you can expect, click here.
To calculate how much you need to save for the retirement lifestyle you dream of, click here.
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