Savers £25,000 behind as average retirement 'outlasts state pension'

After the recent triple lock increase, the full new state pension now stands at £230.25 per week, which amounts to £11,973 annually. However, the typical yearly sum required for retirement is estimated at £36,915, leaving a substantial shortfall of £24,942. Financial experts have warned people that they may not be aware of this significant hole and that they may not know how to bridge the gap.

These figures from assume a relatively modest lifestyle that covers basic needs with some room for occasional luxuries such as dining out. For those aiming for a more comfortable retirement, the annual requirement could be close to £50,000. It's also worth noting that most retirees still have an average mortgage debt of £38,000 upon reaching 65, which can significantly impact their initial retirement savings.

While the state pension isn't the only source of income for many, with 79% of Britons having a workplace pension in 2021, there is often a lack of awareness about the extent to which personal pensions need to supplement their income and uncertainty about how to make their funds last longer.

Shepherds Friendly's Chief Finance Officer, Derence Lee, commented on the issue: "As we navigate through our working life, it's easy to put off thinking about our later years in life.

"The rising cost of living can make saving for the future difficult for some, so we have compiled some tips to help you prepare as best you can."

He highlighted that one simple way to narrow this shortfall is by kick-starting your savings early on through self-invested personal pensions, or workplace pensions, into which most individuals are automatically enrolled, or can opt into if requirements aren't met, are prime examples.

Yet, it's not simply about oblivious monthly savings and forgetting them until retirement looms at 65.

Derence cautioned: "Frequently reviewing your finances is important to make sure you stay on track with your financial goals, even those beyond retirement.

"Consider where you could cut spending if possible, and consider whether saving any extra disposable income into a pension or savings account will be beneficial. Retirement planning is a long-term process, so completing regular reviews of your spending and saving habits is important for staying ahead."

Moreover, he suggested considering investment options over regular cash savings for those who can handle the inherent risks since all investments come with capital risks. Generally, the advice is not to invest anything beyond what one can afford to lose.

For those holding cash ISAs, the nudge towards stocks and shares ISAs or investment accounts might become more compelling following Rachel Reeves' announcement that the government is contemplating a potential overhaul of the system.