Why you won't need £413,000 for retirement

A new study , based on data from the Office of National Statistics, suggests an average household needs £413,000 for a comfortable retirement, based on a life expectancy of 85: read the full details. Do you really need that much?

I've worked for 18 years  (21 years if you include my £1.30 an hour child labour stacking shelves at Tesco) and earned and spent around £290,000, according to my back-of-fag-packet calculation.

I've paid around £17,000 in stamp duty (we like moving) and countless more on moving costs, mortgage payments and rent, £5,000 on backpacking, untold thousands on two little people... the list goes on.

My point? If I can cope on £290,000 in 18 years, during some of them the most expensive years of my life, why will I need £413,000 - or £326,000 for a single person - to cover 20 years of my retirement, when hopefully I'll have no mortgage to pay and no mouths to feed?

I was impressed by two recent blogs by the 'Undercover Economist' Tim Harford highlighting a trend of the pension industry in the US to frighten American into saving more. He cites studies that show most people doing fine on pension saving.

http://timharford.com/2008/06/maybe-our-pension-worries-are-overdone/

http://timharford.com/2008/06/how-can-i-tell-if-i%E2%80%99ll-have-a-decent-pension/

And as an IFA points out in our report on the £413,000 research, some of the cost will be covered by state pensions.  Ok yes, there are big chunks of the population who have fallen behind in pension saving, and yes, we are all living longer.

At the same time, many within Britain's affluent middle classes, who are a lucrative target for the penions industry, are already well prepared for retirement but continue to be coaxed to save more into pension plans that turn a tidy profit for a multi-billion pound pensions industry.

- Andrew Oxlade, Editor, This is Money

------

Postscript - Tim Harford's books offer a refreshing challenge to conventional financial wisdom. As usual, TiM has worked to secure money off for its readers. So here are links to buy his books at a 30% and 34% discount:
-The Undercover Economist
-The Logic of Life: Uncovering The New Economics of Everything

Comments

[Mrs W Raggatt]

Having returned to work after having my family I was advised to save 15% of my salary into AVC's which I did and paid approximatly £250 per month. I was also advised to save with Equitable Life as this was presumed the safest option. Well you know what happened there I ended up with an extra £408 per year.
I now advise people not to bother with pensions and just to save with an ISA at least you still have control with the money you have saved.

[Michael Field]

It may not seem relevant to save £413,000 for retirement now, but you cannot underestimate inflation, and what it can do to your pocket. Take petrol as an example, just over 40 years ago you could buy 4 gallons for under a £1, and in 1972 when I first married, our housekeeping bills were fully covered by £8 a week.

If inflation again rises to the rates of the 1970's and 80's before or during your retirement years, then £413,000 as an average annual wage could be nearer than you think. (Remember the 60's - £1,000 a year was not a bad wage!!)

[Robert Long]

I'm 61 years old next month, self employed and thinking of retiring.
I have 270,000.00 invested in my stakeholder pension, and will have £140,000.00 in savings, including £67,500 25% tax free lump sum from my pension fund.
When I'm 65 I will also receive £117 p.w State Pension.
My mortgage is paid up and the house is worth around £380,000.00.
I am separated but not divorced (my ex and I have settled our financial differences).
Do you feel I have adequate collateral for my retirement based on your assumption that I will need £413,000 for retirement?

Kind regards,
Bob Long (Surrey)

PS This is a great website. Well done all of you!