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Tomorrow's retirees face sobering reality check

Those currently saving for their retirement risk exposing themselves to volatility as a result of prioritising a property purchase

23 November 2015

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Savers in the 30-39 year-old bracket will have to reduce their retirement income expectations by as much as £860,000, as the purchase of their first property will hugely dent their pension prospects.

Seventy-four per cent of those aged 30-39 expect to retire by the time they are 65, with a desired annual income of £48,949, a study carried out by Towry shows.

As a result of prioritising a deposit for their property purchase, those in this bracket are only putting 23 per cent (£285.20) of their total savings towards a pension, which will leave them with a pension pot worth around £240,000 (adjusted to inflation).

'These figures show that 30-39 year olds are likely to be very disappointed with the pot they have to draw on in retirement', commented Andy James, head of retirement planning at Towry

'Either they need to drastically reassess their expectations of retirement income and face the prospect of working well into their 70s, or start saving a lot more into their pension fund right now.'

The average age for a first-time buyer is 30 and the average price they pay for their property is £178,370.

The study also shows that 23 per cent of 30-39 year-olds expect property to be the best vehicle for funding their retirement, even though it does not provide any cash flow.

James warns that this clamour to purchase a property could leave some savers relying too heavily on one asset thus exposing them to volatility.

'Concentrating on saving for a property at the expense of a pension pot has other potential risks too, as over-reliance on any one asset in a savings plan can be dangerous.

Whilst everyone has different risk profiles, as a general rule of thumb those looking to build a nest egg for their retirement should consider diversifying their investments across multiple assets in order to mitigate against volatility.'

Meanwhile, research carried out by Portus, an employment benefits consultancy firm, has shown that 53 per cent of respondents to their study did not understand the tax rules under the new pension freedoms.

Only 54 per cent of those aged 55-64 (1,080 respondents) are aware that they can withdraw 25 per cent of their pension tax-free.

 

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Pensions