For most of us, we work hard all our life in hope of a happy, and comfortable retirement, doing the things we never had time for whilst working. A big holiday, spending more time with your loved ones or simply putting your feet up – our retirement dreams differ. However, are pension pressures and debt demands changing what we’re dreaming of?
In a recent survey by pension provider, True Potential Investor, findings show a significant split between retirement expectations in different age groups. For a number of years, a round-the-world trip has been the retirement dream for many — and it seems that 25-34 year olds are keeping this dream alive.
When you reach the age of 55, you are entitled to take 25% of your pension pot as tax-free cash. In Q3 2016, 25% of 25-34 year olds said they would like to spend their 25% tax-free pension lump sum on a round-the-world trip. However, just 2% of over 55s said the same. Perhaps this disparity between age groups is a result of a more realistic outlook from over 55s. While 25-34 year olds are hopeful about their pension potential, over 55s are closer to retirement and are therefore more aware of the limitations of their pension savings.
According to the research, the average 55 year old has a private pension pot worth £51,446, meaning they would receive a tax-free lump sum of around £12,900 — an amount that is dwarfed by the actual cost of a round-the-world trip. For example, a mid-range ticket on a 120-day Miami to Miami world cruise costs around £48,000 — nearly the entirety of an average 55 year old’s pension savings.
In reality, the tax-free lump sum wouldn’t cover a round-the-world trip. In fact, it is likely to only cover the cost of a trip halfway across the South Pacific, cutting their 120-day trip to just 35 days. This is based on a single traveller; throw a partner into the mix and the trip would take them from Panama Canal to California.
The research also revealed that attitudes towards general holidays is changing. It’s not just round-the-world trips that over 55s are realising are out of their reach. Just 10% of over 55s said they were going to take regular holidays once retired, while 34% of 25-34 year olds said the same.
But what is the reason behind this change in attitudes? The private pension providers suggest it is down to growing realism amongst pension savers. The survey suggests that people are only becoming aware of the reality of their pension pots when it’s too late, which should motivate young people to start contributing to their pension pot sooner, no matter how small the amount.
Thankfully, that seems to be the case amongst the younger generation. In Q3 2016, just 19% of 24-34 year olds failed to make a contribution to their pension pots, down from 26% in the previous quarter. With this figure expected to grow, and more 24-34 year olds expected to contribute more to their pensions, hopefully future retirees may not need to give up on their travel dreams.
Why not take True Potential Investor’s quiz today to find out how much you’ll potentially need in your pension pot by the time you retire? To complete the quiz, all you need to do is answer a few questions about your current expenditure and future plans.