Money and Mind II webinar on retirement

We recently launched our second Money and Mind report with a webinar hosted by Leigh Dunkley, Financial Wellbeing Lead at Schroders Personal Wealth (SPW). The webinar featured Katie Nutting, Chartered Personal Wealth Adviser at SPW, and financial commentator Jason Butler, who has 25 years’ experience as a financial adviser and is a Chartered Fellow of both the Chartered Institute for Securities & Investment and the Personal Finance Society.

The content of the webinar was wide ranging. This article is based on the discussion about retirement.

Our report shows that, on average, UK adults expect to need 42% of their current working income in retirement. Worryingly, 61% of those with a pension say they are either not on track to reach their pension goals, or they don’t know if they are. The pensions gender gap is also prevalent in our findings, as this statistic rises to 70% for female pension holders. This suggests more could be done to support women with increasing their retirement savings.

During the webinar we conducted a poll, asking people to name their main financial concern. We gave them the following five choices:

1. Making sure my wealth can last a lifetime

2. Affording luxuries and fun things

3. Making sure my wider family are OK

4. Leaving a legacy to people and/or causes

5. Something else.

The vast majority of respondents voted for ‘Making sure my wealth can last a lifetime’. This was followed by ‘Making sure my wider family are OK’, followed by option 2, then option 4, and, finally, by option 5. So preparing for an adequately funded retirement seems to be at the forefront of people’s financial priorities.

Choosing your retirement lifestyle

But how should you prepare for retirement? To begin with, you need to decide what you consider to be adequate retirement funding, as this can vary from person to person. Katie Nutting said: ‘It depends on how you want to live your life.’

For example, Katie pointed out that some people take the following kind of approach: ‘I really don’t want to work anymore. If that means eating tins of soup and beans on toast and just going for walks or pottering around in the garden, then I’m happy to do that.’

In contrast, Katie said: ‘For other people, it’s about having a holiday every year that’s going to cost £2,000. They also want to be able to do things with the grandchildren.’

Katie added that, when it comes to assessing retirement funding, you first need to estimate your essential spends. This could include items such as council tax, water bills, food shopping and car-related costs. She said: ‘If you know what your essential spends are, then you know that’s the minimum you need. On top of that [will] be your desirables, which you can [alter] depending on the income you’ve got coming in.’

Jason Butler said that the Pensions and Lifetime Savings Association (PLSA) produces an annual Retirement Livings Standards assessment. The PLSA estimates the costs of retirement as follows:

Retirement costs for six different categories

According to the PLSA, the Minimum category covers all your needs, with some money left over for fun. It includes holidays of one week and one long weekend spent in the UK every year. The Moderate category offers more financial security and flexibility. It includes holidays of two weeks in Europe and one long weekend in the UK every year. Finally, the Comfortable category offers more financial freedom and some luxuries. It includes a three-week holiday in Europe every year.

But Jason said of retirement spending, ‘It’s a very personal thing: you can live on little and you can live on a lot. I know people who spend £200,000 a year and they never seem to be happy.’

Achieving adequate retirement funding

So how can you go about achieving what you consider to be an adequate level of retirement funding? Jason said: ‘We’d love to have a magic wand to give you more money. But, in the absence of that, there are two practical suggestions.’

First, you could trim down your current lifestyle costs. Jason said that, if you get used to living a simpler life now and save more for your future, then you should need less money when you stop work. Second, you could work for longer, but less intensely.

Jason added that those at the early stages of retirement who have cash savings could talk to a financial adviser about stopping withdrawals from their investment portfolio for a while and draw on the cash instead. He said that, if you can avoid drawing on your investment pot at the early stages of retirement, then you’ll have a greater chance of those investments lasting for a lifetime.

Jason and Katie both suggest considering topping up the contributions to your State pension, if you have not yet made sufficient contributions to be eligible for the maximum State pension. Katie said: ‘We will always look at maxing out your State pension. We will always look at whether we should top it up and the cost and benefit of it. People can underestimate the value of a State pension.’

Even so, Katie said that the decision as to whether or not you should top up your State pension will depend on the other elements in your financial plan. So you should consider any guaranteed income you might have across final salary pensions schemes (these are pensions in which the income is dependent on your final salary level with the company). You should also consider if you have any other pensions or any other income and how affordable is it for you to top up your State pension.

Jason added that you might not want to top up your State pension if you think you could die in the next two or three years. But if you think you’re going to live a long life, then it could be well worth doing. ‘It’s normally a no-brainer to top up your State benefits,’ he said.

Worryingly, according to our Money and Mind Report II, 67% of pension holders don’t know how much money they will need in order to live comfortably when they retire. More positively, this drops to 50% for those who have a financial adviser. You can book a free initial consultation, with one of our advisers, via this website. Or you can call us on 0808 296 5953.

For more on preparing for retirement, see our article on how to create a financial plan.

The full Schroders Personal Wealth Money and Mind Report II is available for download from this website.