Too much faith in the State pension
When it comes to income in retirement, much is likely to come from two sources – your own pension provision and the State.
Nearly one in five (18%) people planning to retire in 2010 will be retiring on the State Pension and savings alone. This is according to new research from Prudential.
The Class of 2010 study was conducted by Research Plus between 3rd and 10th December 2009 with 6,073 UK adults over 45 years old, using an online methodology.
Nearly a third (31%) of those surveyed did not know how much the basic State Pension pays or over-estimated the individual weekly amount by £25 or more.
The basic state pension for a single person is currently £4,953 per year, or £95.25 per week. Could you afford to live on that?
On average, the basic State pension represents 34% of likely income for those retiring in 2010. The balance is made up of income from company pension schemes (36%), other savings and investments (11%) and personal pensions (9%).
It is interesting to note that, despite the current debate on mandatory retirement ages and the Government message that we all need to be working for longer in retirement, only 6% of income is likely to come from part-time employment.
Retirement can be a very challenging time financially. It is even more challenging if you fail to plan ahead and have unreasonable expectations of the State pension.
As a first step, request a State pension forecast so you can see precisely what level income you can expect to receive from this source when you retire. This is completely free to obtain. Simply visit www.direct.gov.uk and request your copy.
It is also a good idea to collate projections for all sources of retirement income. Look at the total level of income you might expect to get in retirement and relate this to your likely level of expenditure in older age. The gap between likely income and likely expenditure is the scale of your retirement income planning objective.
The earlier you start this process of retirement income planning, the easier (and cheaper) it becomes.
Rather than putting blind faith in the State, start planning today and understand your retirement income.
Martin Bamford is Site Editor of BrilliantWithMoney and a Chartered Financial Planner at Informed Choice. You can follow him on Twitter @martinbamford.
