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92% of high-net-worth-individuals underestimate how much money they need for a comfortable retirement

advisers
  • People with investable assets of more than £250,000 think they’ll need a pension pot of £730,000 to achieve a retirement income of £53,000 a year
  • In reality, retirement savings of £1.3m are needed – almost twice the average estimate
  • Women, younger people, and those with fewer assets have the most unrealistic expectations when it comes to retirement savings

High-net-worth-individuals (HNWIs) in the UK are significantly underestimating how much money they need for the retirement they want, with the average respondent misjudging by almost half, according to the inaugural Saltus Wealth Index.

The Saltus Wealth Index surveyed more than 1,000 people in the UK with investable assets over £250,000 to gain their thoughts and feelings about the UK economy, their own wealth and what matters most to them personally.

When asked about pension savings, and how much they think they need for a comfortable retirement, almost two-thirds (64%) of respondents stated they would need an income of more than £50,000 a year, with one-in-seven (13%) saying they would need at least £80,000. On average, respondents thought just over £53,000 a year would be enough to feel financially content in their later years.

To enjoy this level of income, experts believe a pension pot of around £1.325m is necessary[1], however, when asked how much they thought they need, on average, respondents assumed £730,000 would be sufficient.

The higher their net worth, the more respondents think they’ll need for a comfortable retirement, with those with investable assets of between £250,000 and £499,999 saying they think they’d need £45,000 on average compared to those with £3m and over who think they’ll need £72,000 a year.And while overall, 92% of respondents underestimated the size of pension pot they’d need for a comfortable retirement, younger people, and those with a lower net worth had the most unrealistic expectations.

Michael Stimpson, Partner at Saltus, said: “Our inaugural Saltus Wealth Index highlights some important issues around expectation versus reality when it comes to wealth with a clear misunderstanding surrounding how much money is needed for a comfortable retirement.

If anything, the perception gap between expectations of what will be needed and what is actually needed could get bigger as life expectancy continues to grow – living to 100 could become commonplace, and the impact that will have on retirement planning could be huge.

“Rising life expectancy is going to impact millennials the most, and this is the group, according to our research, that are the least realistic about what they will need in retirement. This not only highlights the importance of having a robust financial plan in place, but also, that it is never too early to start investing in your future.”

To read the Saltus Wealth Index in full click here.

 

[1] The 4% rule was developed by financial planner William Bengen in 1994. Through his research, Bengen found that people could withdraw 4% of their investments in the first year of retirement and then withdraw the same amount, adjusted for inflation, for at least 30 years without exhausting their portfolio.

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