It now seems we are all going to be even poorer in our dotage than we might have imagined, so that telegram from the queen might turn out to be cold comfort - literally.
Researchers from the authoritative sounding Centre for Economics and Business Research looked at the rising cost of retirement and came up with a scary average figure of £413,000. "Ridiculous" I hear you cry, "How can they possibly know that?"
Well, of course any average figure can be misleading, but sadly this one is based on some fairly robust research. The CEBR looked at household expenditure to assess how much pensioners spend at set stages of their lives after work. The key points were:
- At 65 the average weekly spend is £308, with a measly £43.50 going on food, £35 on housing and fuel, and a whopping £53 on ‘leisure’
- By 85, that weekly spend goes up to £373, with housing rising the most to £80 a week
When you add up the figures, taking average life expectancy into account, the total cost of retirement for anyone living to around 85 is £326,700. Scariest of all is the cost of living to 100. According to the research, the cost of living from retirement age to 100 rises to almost three quarters of a million pounds - a cool £708,500. To put that in perspective, if you are 55 today, you have 1 in 10 chance of having to scrape together that kind of cash.
If that isn't worrying enough, if inflation stays where it is, the cost of reaching your century will rise to well over £1m. Small wonder, then, that the news has long been peppered with warning that pensions are chronically underfunded.
As Jonathan Davies of financial planner, Armstrong Davies put it: £People are massively underfunded on their pension provisions. People are up to their eyeballs in debt and... …it is becoming increasingly difficult to house yourself and save for retirement."
OK, so as someone who makes a living persuading people to put money in pensions he has vested interest, but the point is pretty well established. We are all going to be poor when we are old. Great.
So, what can we do about it? Well, if you are relatively young, the news is far better than if you have left it late to sort out a pension. Taking a final pension fund of £300,000 as the target (which admittedly looks paltry in the context of the research detailed above):
- A 25 year old would need to start saving about £120 every month
- For a 35 year old, the figure rises to £250
- If you are 45, the news is bad. Payments would need to be £570 every month. Good luck with that
Sadly, those figures only take into account relatively low inflation, which means the fund would go further in terms of actual spending during retirement.
If inflation was to run at say (God forbid) 5% for the next 20 years, a 45 year old pension late starter would need to pay £1,500 per month to make build a £300,000 fund. Oh, and by the way, that £300,000 fund would equate to an annual retirement income of about £20,000 per year.
Of course, there are other options in terms of saving for retirement. I went for property, which is looking a bit shaky too at the moment. Having said that people will always need somewhere to live, so I’m as sanguine about that one as I can be, given the state of house prices at the moment. Indeed, the coming months and years should offer a very good opportunity to invest in property as a retirement option, as prices bottom out and eventually start to recover. OK, I have got one or two fingers crossed, but the equity markets look a far more risky option at the moment.
Aside from that, the only thing you can do is to get some expert advice and start building a retirement nest egg now, plough as much money as you can into that fund and, in particular, look at funds that invest in commodities such as gold, oil and gas. After all, whilst fuel is costing us all a fortune, the energy companies are doing rather well.
