Yahoo Finance How to save for a good retirement income
“Building up a good retirement income is a huge challenge, but recent research carried out by Hargreaves Lansdown shows that for millions of households the key to helping themselves massively rests in their own bank accounts and ISAs. By making small changes in how we allocate our money we can make an enormous difference to our retirement prospects.
The HL savings and resilience barometer uses an array of different data to give a six-monthly snapshot of the nation’s financial resilience. When we look at financial resilience in retirement we model that against a household being on track to receive a so-called moderate retirement income This is based on data from the Pensions and Lifetime Savings Association which puts the cost of a moderate income in retirement at about £23,000 per year for a single person and £34,000 for a couple. Achieving this moderate retirement income means you are able to afford things such as a European holiday once a year and to run a small car.
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The most recent modelling from the barometer shows that 12.2 million households do not have the pension savings required to retire within this moderate living standard. However, within this group, almost 7m households are not in debt and have the excess cash and/or investment savings that could be used to boost their pensions if they were to shift it across.
As a rule, we recommend that you keep 3-6 months’ worth of essential expenses in an easy access bank account that you can use in case of emergencies. However, many households have much more than this set aside and by moving the excess into their pension or other investments they could make a huge difference to their retirement planning.
It’s a relatively simple behavioural shift that could see 1.8 millon households passing the threshold for a moderate retirement income and securing their financial future while the outlook for the remaining households would be significantly improved.
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It’s a shift that can help people of all ages, but the boost is bigger for younger households with longer to go until they retire. For instance, we estimate that around 34.5% of households aged below the age of 39 are on track for a moderate retirement income. However, if they were to shift the excess savings towards their retirement savings it would increase to around 44.5% of households. The difference is less pronounced in older households but still meaningful – for instance for those aged 55-59 it goes from 41% of households to 48%.
It is understandable that people piled money into savings during the pandemic and the cost of living crisis to help them meet their short term financial challenges but as the gloom finally shows signs of starting to lift some of this could be re-allocated to give people confidence they are on track to meet their longer term financial responsibilities as well.”
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