Outliving savings

The need for income has been pushed into the spotlight

Nearly three quarters (73%) of mass affluent investors[1] in the UK say it’s important for them to earn an income on their investments, yet they still allocate more than 40% (41%) of their assets to cash, according to the BlackRock Investor Pulse survey. Mass affluent investors face an average annual income shortfall of £12,610 in retirement, which jumps to a staggering £28,000 shortfall among the mass affluent millennial population. Perhaps unsurprising then that a third of mass affluent Britons are concerned about outliving their savings in retirement.

Mind the income gap

Mass affluent investors say they will need an annual income of £32,456 in retirement and expect that a pot of £396,910 will achieve this. In reality, they face an annual income shortfall of £12,610. This gap widens further among the millennial age group, who face the biggest disappointment. They want an income of £43,103 a year and think £300,934 will be sufficient, but will in fact experience a shortfall of £28,057 annually. Even factoring in the State Pension, millennials are still going to be short by more than £20,000.

It’s not just the retirement pot people underestimate, but also how long they are going to live. The average mass affluent millennial expects to live to 80, but one in five of them will live to 100[2] – twice as likely as their grandparents. Furthermore, they believe they’ll be able to retire at 61 – an unlikely ambition given the annual income shortage they are already facing. While those aged 35 to 44 have a more realistic expectation in believing they’ll live to 84, there is still an 18% chance that they’ll reach 100. This indicates that many are not factoring in how far their savings will need to stretch.

Advice is more than a one-hit wonder

Increasing life expectancy and the introduction of the pension freedoms has lengthened the period of time in which people can receive advice. However, 34% of mass affluent investors have only used an adviser for a one-off event. This presents an opportunity for advisers to demonstrate the value of long-term financial planning versus providing advice for one-off events.

Advice is golden

Long-term low interest rates and the recent focus on pensions have pushed the need for income into the spotlight. Saving for your retirement is one of the most important financial plans you can make. To discuss the planning options available to you, please contact Admiral Wealth Management on 01472 357035 or email info@admiral-online.co.uk.

Source data

[1] Mass affluent investors are defined as either having £100,000 personal income, £150,000 household income or £100,000 investable assets.

[2] ONS – How long will my pension need to last? http://visual.ons.gov.uk/how-long-will-my-pension-need-to-last/

BlackRock research conducted from July to September 2015 among a nationally representative sample of 30,500 financial decision-makers in 20 countries, aged 25 to 74 years old. Sample for UK: 4,000. The results of the survey are provided for information purposes only. The conclusions are intended to provide an indication of the current attitude of a sample of UK citizens to saving and investing and should not be relied upon for any other purpose.