Generation X is looking forward to life’s small pleasure in retirement, but are in the dark about the cost

How much do you need to save for retirement? It’s an important question, but research suggests that while Generation X is looking forward to the life they’ll have after work, many haven’t thought about the cost.

Generation X, defined as those being born between the mid-1960s and the early-1980s, are beginning to approach retirement. While it can still seem some way off, getting plans and finances ready can help you create the lifestyle you want. Understanding what your retirement lifestyle will cost, and how to pay for it, means you can address potential gaps now to keep your plans on track.

33% of Generation X prioritise socialising in retirement

Retirement is often associated with big-ticket expenses, from luxury cruises to a holiday home in the UK. Yet, a third of Generation X want to prioritise socialising over big-ticket items, according to Money and Pension Service research. Among the simple pleasures that can make retired life fulfilling that they’re looking forward to are:

  • A trip to the seaside (42%)
  • A meal out in a nearby restaurant (34%)
  • A coffee with friends (33%)
  • Gardening (32%)
  • Entertaining family and friends at home (28%)
  • A drink in their local pub (24%).

After the challenges of not seeing loved ones during the Covid-19 pandemic, it’s not surprising that 73% said that spending time with family and friends has become more important. With a focus on loved ones and enjoying the small pleasures of life, you may think that Generation X doesn’t need to worry about saving enough for retirement. However, the research suggests many will need to cut back on their plans unless they boost their retirement savings.

Carolyn Jones, pensions expert at Money and Pension Service, said: “Enjoying life’s little pleasures, like a catch up over a coffee with friends, has become even more special than ever in recent months. But our research has served up a less than tasty truth, that many of those currently saving for retirement could face having to cut back on the lifestyle they’re expecting. The important thing is, it’s not too late to take action.”

How much do you need for retirement?

There’s no one-size-fits-all rule when it comes to how much you need to save for retirement. You need to consider things like:

  • What financial commitments will I have in retirement, such as a mortgage or supporting children?
  • What will my essential expenses include?
  • How much disposable income do I need to create the lifestyle I want?
  • Do I plan to make any large one-off expenses in retirement?

Understanding what you want your retirement to include can help you see how your pension and other assets will support this.

To provide a general idea, Which? research suggests a couple wanting a “comfortable” retirement would need an income of £26,000 a year. This budget includes some of the things that Generation X highlighted as important to them. For instance, an annual budget of £1,476 a year is earmarked for recreation and leisure. It also includes holidays in the UK or Europe. If you want a “luxury” lifestyle with a budget for expensive meals and long-haul holidays, the research estimates you’d need an annual income of £41,000.

For most of Generation X, their main way of saving for retirement will be through a pension. So, understanding how a pension can translate into an income is important.

If you have a defined contribution pension, your savings will usually be accessible from the age of 55, rising to 57 in 2028, and will be a lump sum. There are several ways to access your pension. You could purchase an annuity to generate a guaranteed income for life. Or you could use flexi-access drawdown to create a flexible income, with your untouched savings usually remaining invested.

The Which? research assumes couples will receive the full State Pension, providing a reliable income to build on. For couples aiming to achieve an income for a “comfortable” retirement, the organisation estimates they would need:

  • £265,420 to purchase an annuity
  • £154,700 when using flexi-access drawdown.

While the flexi-access drawdown option may seem more attractive, keep in mind that your money will be invested and the calculations assume your savings will grow by 3% each year, which cannot be guaranteed. Leaving your money invested provides it with an opportunity to grow, but also means it’s exposed to investment risk. This can be the right option for some, but others may find the security an annuity offers is preferable.

Are you ready to plan your retirement?

While it is not too late to boost your pension, it’s not too early to start planning for your retirement either. Whether you’re looking forward to socialising with loved ones more or other experiences, the decisions you make now can have an impact.

We’re here to help you make sense of your options and how pensions can help you turn retirement dreams into a reality. Please contact us to arrange a meeting with one of our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

If you’d like to talk to us about any of the above, please get in touch.