Wealthy individuals tend to underestimate the requisite savings needed for a contented retirement.
High net worth individuals (HNWIs) in the UK may need to reconsider their retirement savings goals, according to a report by Saltus. The financial services firm suggests that many HNWIs are underestimating the amount they need in their pension pots to ensure a comfortable retirement.
The average HNWI in the UK currently has a mean pension pot of around £518,000 for a 64-year-old and £498,000 for a 44-year-old, with annual contributions of £17,025 and £35,105 respectively. However, Saltus's data indicates that HNWIs may need nearly an additional £1 million more than they currently expect to secure a comfortable retirement.
According to Saltus's Pension Calculator, a pension pot size of around £1.5 million is needed for a comfortable retirement. This is significantly higher than the average respondent's estimate of £663,308 in a survey of 2,000 HNWIs.
The shortfall for a 44-year-old falls to zero when accounting for the state pension and their contributions, as the pension pot grows large enough to secure a comfortable retirement. However, for those aged 54, the mean pension pot is £532,906, with a total pot of £1,263,302 at retirement, leaving a shortfall of £738,296 for a comfortable retirement.
The shortfall for a 64-year-old falls to £526,538 when deducting the state pension. Assuming a 4% return on investment, the pension pot of a 64-year-old would grow to around £611,618 by retirement, leaving a shortfall of £952,027 for a comfortable retirement.
Mike Stimpson, partner at Saltus, states there is a disconnect between retirement planning expectations and reality among high earners. He points out that rising costs and higher interest rates are forcing some HNWIs to cut pension contributions, which puts retirement plans at risk and underscores the need for larger pension savings to maintain their desired lifestyle.
The UK's Pensions UK report suggests a single person needs an income of around £43,900 a year for financial freedom and luxuries during retirement. With the average state pension currently at £9,339 per year, many HNWIs may be falling short of their retirement goals, as pension pots are often used to support family or cover rising living costs.
There are growing concerns that maintaining the state pension could become unsustainable without reform, as outlined by the Institute for Fiscal Studies in their Pension Review. With this in mind, it is crucial for HNWIs to carefully consider their retirement savings goals and seek professional advice to ensure they have enough to live comfortably in retirement.
In summary, high net worth individuals in the UK should consider aiming for pension pots at least £950,000 larger than their current estimates suggest to retire comfortably, according to Saltus's data.
- High net worth individuals in the UK might need to revise their retirement savings expectations, as a pension pot size of approximately £1.5 million is necessary for a comfortable retirement, according to Saltus's Pension Calculator.
- Mike Stimpson, a partner at Saltus, stressed the disconnect between retirement planning expectations and reality among high earners, highlighting that rising costs and higher interest rates could force some HNWIs to reduce their pension contributions, potentially putting their retirement plans at risk.
- In light of concerns about the state pension becoming unsustainable without reform, as suggested by the Institute for Fiscal Studies, it is crucial for high net worth individuals in the UK to carefully assess their retirement savings goals and seek professional advice to ensure they have sufficient funds for a comfortable retirement.