Just 18% of high-earning households are on track for a comfortable retirement, research by Hargraves Lansdown has found, forcing people to make tough decisions about investing for their future.
Data from the recent Savings and Resilience Barometer has found that the average income needed for a “moderate retirement” is around £25,000 per year for a single person or £36,840 for a couple, but this will not be good enough for many couples.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Well over two-thirds of the highest earning households are on track for a moderate retirement income. On the face of it this looks good but dig a bit deeper and there’s a nasty shock in store”.
Higher earners are used to spending much more than this, meaning the actual cost of a comfortable retirement will be much higher.
According to updated estimates, the average cost of a “comfortable retirement” would be £38,662 per year for a single person, rising to £58,840 for a couple. Just 39% of higher earners are on track to meet this target, with less than 20% of overall households expected to reach this £58,000 goal.
Given this, the investment platform outlined several changes that could help people build their retirement resilience.
Firstly, savers should try to increase their pension contributions over time, particularly after pay rises, with higher earners benefitting from up to 45% in tax relief.
In line with this, Morrissey recommended that earners contribute any bonus pay into their pensions, which can prove effective if their employer adds further national insurance savings.
Other measures such as checking if an employer will match an increased pension contribution, can get earners much closer to a more comfortable retirement.
Additionally, savers must plan for their retirement, Morrisey said. Estimates on retirement incomes are just averages, with the actual cost being a “hugely personal thing and will look different to everyone”.
By creating income targets, people can determine what gaps in their pensions need to be filled, allowing them to determine how best to approach saving for their retirement.
Once savers have planned out their retirement, tools such as pension calculators allow earners to stay on track, and make sure they are receiving the retirement income they need.