24 Sep 2019
The In-Betweener Retirement Dilemma
The transition from final salary to defined contribution pension schemes and the relatively recent introduction of auto-enrolment pension schemes, coupled with slow income growth in the past 10 years, could mean for those planning to retire from around 2035 are going to be seriously underfunded for retirement and face an uncertain future.
If you are aged 30-45 (like me, straddling Generations X and Y), we’ll be amongst the first to retire after 2035. Some are calling this group the ‘In-Betweeners’.
In-Betweeners are likely to be working, in a relationship, living with their spouse or partner, have children living at home and making joint financial decisions.
You understand it is important to invest for your future, however, you are struggling to save from your earned income and likely to be saving less than £100 per month into a pension arrangement. You may have a small savings fund, but this is earmarked for holidays, new cars and real emergencies. You will either be renting and saving for your first property or, having purchased your first home, be looking to upgrade and buy a larger property in the future, or extend your current home.
If this sounds familiar read on.
The rising cost of living, low income growth and lack of disposable income are key barriers towards saving more towards your financial future.
It’s likely you have some old pensions you collected with previous employers. You are unsure of their value, what they are invested in, the benefits or income they are likely to provide in retirement.
You may be relying upon the state pension to fund some of your future retirement income, but on the basis it will be available from age 67 at the earliest, you recognise that if you want to retire earlier than this, you will require some savings to support the period in-between retiring and claiming the state pension.
You may be thinking about downsizing when you retire and using the proceeds of your home to support your retirement living expenses. Alternatively, your parents and other loved ones have inherited from your grand parents and although you are not expecting any future legacies, this is a possibility. However, it all depends on how long your parents live and whether they require expensive long-term care, which would reduce if not entirely deplete any legacy.
Old Mutual Wealth research indicates In-Betweeners keep putting off planning. On average they delay their financial planning by around eight years. Those aged 30, on average, take almost 10 years to start planning. As you approach your 40’s and beyond, you begin to recognise time is running out and the number of years before you begin starting retirement planning falls to around six years.
I know it’s easy to get distracted. You are not procrastinating; it's just you have not got around to doing it. It’s the same about sorting out your wills and noting how you would like your affairs to be dealt with in the event of an accident.
Having more disposable income would encourage you to make a financial plan, but is this likely to happen sometime soon given the economic conditions?
Having no financial plan may make you worried about your financial future. Almost two thirds of In-Betweeners are concerned they won’t be able to afford a decent standard of living in retirement, or be able to support health or social care or their families as they are growing up. This is likely to have knock on effects, leaving you feeling concerned, pessimistic, confused or frustrated. So why begin planning now?
Research suggests, for those aged between 50-75 who had a plan and saw an adviser regularly, received a retirement income which was 41% higher than those who never visited an adviser.
Working with an adviser on what’s important to you, why it matters, and why it makes a difference, will enable you to plan your financial future. Being stuck in-between is an uncomfortable position, but it can be made easier with the support and advice of a Chartered Financial Planner.
If you would like to discuss any of the above, please contact me at firstname.lastname@example.org or 01823 462400