Are You Saving Enough for Retirement?

The baby-boomer generation are failing to save for retirement - squeezed by the rising cost of living and financially dependent adult children and parents

Emma Wall 27 November, 2013 | 7:00AM
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Emma Wall: Hello and welcome to this pension special. I'm Emma Wall and here with me today to talk about the state of your retirement savings is BlackRock's Tony Stenning. Hello, Tony.

Tony Stenning: Good morning, Emma.

Wall: So shocking stats from your Investor Pulse survey reveal that only half of 45 to 54 year olds are actually saving for retirement. 

Stenning: Yes, very interesting. This is just sort of debunking a few myths that society would suggest. In the past this has been one of the perhaps wealthier parts of society, and I think there is a number of circumstances that have come together. It's a modern society we all live in. You've got a number of challenges about that; we're all having our kids later and they're all staying around a lot longer.

So one in two of these people have got some sort of dependency, because if you ally that to the fact that we’re all living longer, your sort of parents, grandparents are living and perhaps you’re also looking after those, you are sort of being cut at both ends of the spectrum, and that means that these people are really being squeezed. These are the – people are saving the least in society, just 12 pence in every pound. One in two of them are not even thinking about their long-term savings, their retirement, and you've also got this real challenge to their purse strings, the family budget. They're spending 52p in every pound, and that's again the biggest number of any part of society. 

Wall: There is also a problem with reality and expectation, isn't there; not only these people putting off retirement saving, but they're also expecting to get a lot more than they're able to for their buck?

Stenning: So, absolutely right, there is really interesting sort of dichotomy here, where they recognize that there is a challenge that they are living longer; we are all being told that and you can, and actually that's a positive; I'll come back to that, you can use that to your benefit, but they're not actually doing anything about it. There is one in twos, we said, aren’t saving, but their expectations are that we want to retire on a pension that's roundabout twice the average that a single person gets today.

So it's roundabout £30,000 just under, and today a single pensioner, the average pension is about £15,000. How are they going to achieve that when two-thirds of their assets are sitting in cash and you've got one in five not prepared to take any risk whatsoever with their investments. It's a real challenge for them. The plus side, there is a positive here, that we are living longer, so you can use that longevity, it's not too late is the message. 

Wall: Going back to that stat that you just said about cash. I mean, we've had base rate up 0.5% for nearly five years now; it’ll be five years in March. Yet people still hold it as sort of a safe haven for their portfolio, 60% in cash and another 30% are planning to add to that cash in the near future. This has got to change.

Stenning: It really has. That cash machine just isn’t working and it's not working for a number of reasons. First off, as you said, we've got record low interest rates, but you've got that paralysis that people are finding themselves in. You've had the financial crisis, you've had a whole heap of things being thrown at them. They are very scared and they want some sort of certainty of return. So they feel that if they put a pound in their bank account, I get a pound back, that’s going to help me for my retirement.

In fact, one in three, think that’s going to be a really good source of income despite these record low of interest. For their retirement, you've got this real challenge, the sort of silent killer called inflation. I think people, when they look at this, they go actually with inflation 2%, maybe approaching 3%, interest rates where they are half if you are lucky, if you are getting that from your bank account, it's not a problem. It's as big a problem as it was in the Seventies. This is eating away the purchasing power of your assets and when you do retire, if you've done the right thing and you’ve saved your part, you are not going to buy the sort of goods and services that you really thought you could.

Wall: What is the answer then?

Stenning: The answer is, you need to think beyond cash. Now, I appreciate this, there is a real challenge for people, but if you listen to and we surveyed number of people at or beyond retirement, what can you do. They were saying, look, three things. They would say, save early and as much as you can. I appreciate there are challenges to those budgets that we talked about. Review your savings on an ongoing basis, and in fact, if you have a plan, you are twice as confident of your financial future as if you don’t – if you don’t review it. Thirdly think long term and that means thinking beyond those cash investments, perhaps taking a little bit of risk in your portfolio, because over the long term that can work for you with that increased longevity that we talked about before.

Wall: Tony, thank you very much.

Stenning: Thank you, Emma.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Emma Wall  is former Senior International Editor for Morningstar

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