MY first experience of financial education was from my father. He often encouraged me to be “smart with my money” and to save, save, save.
When I was a teenager in transition to adulthood, money was very abstract. I knew it would fund my living expenses and spontaneous errands as well as more serious goals like my first car or a security deposit. But when it came to long-term savings, especially pensions, I felt completely clueless.
The word pension only entered my vocabulary when I started my first job after college. I was automatically enrolled in an employer pension plan and soon discovered that retirement costs more than I thought.
According to which? Households with two pensioners spent just under £2,340 a month on average – the equivalent of nearly £28,000 a year – to be ‘comfortable’. This figure included all areas of basic spending as well as some luxuries, including European vacations, leisure and dining out.1
Plus, research has shown that if you want to retire and enjoy luxuries like long-haul travel and a new car every five years, you’d need £45,000 a year.
It goes without saying that we all want to live comfortably and for a long time, so setting retirement goals is essential. How do we finance this?
Contributing regularly to a pension with a regular savings plan can certainly ease the path to retirement, whether it’s an employer pension or a SIPP. Yet, it appears that women are more likely to miss their retirement goals, compared to their male counterparts.
According to Fidelity’s Women and Money Global Study2 women risk missing out on their retirement goals because they are not able to plan for them early enough.
Despite retired women’s top priorities, including staying in their own home (37%) and passing on wealth to their family (27%), the majority have no plans in place to achieve these goals.
The main barriers preventing women from investing in their pension include lack of funds (45%), competing savings priorities (20%), limited knowledge of how to save (15%) and lack of time to plan (9%).
More than a quarter of women (27%) say that their priority in retirement is to be able to pass on wealth to their children and grandchildren, but only 10% have taken this into consideration when planning their retirement. We have lots of useful online retirement calculators here.
If you consider these results in a cost of living crisis, the pressure on people’s finances has only increased.
It is therefore of great concern that many women who already face significant savings and investment challenges may reach retirement age and are unprepared.
It’s easy to adopt a mindset of living in the moment. However, with an aging population and increasing life expectancy…retirement planning is not something you can ignore.
With the government’s cap on childcare costs due to be introduced in 2023, those nearing retirement will still face the prospect of paying up to £86,000 from their own savings. These costs need to be factored into broader financial planning early on, otherwise you risk releasing equity in your home or facing limited choice in the care you have access to.
Maike Currie, chief investment officer at Fidelity Personal Investing, said: “There are many well-documented financial barriers between women and their retirement goals, with the rising cost of living presenting another challenge.”
Since many households focus on the most immediate costs they face, it’s essential to remember the long term and include your retirement goals in your long-term planning.
“As counseling is not an affordable and readily available pathway for everyone, more needs to be done to ensure that everyone has the opportunity to enjoy a comfortable retirement. Working with industry groups, such as The Investing and Saving Alliance (TISA) and government, we believe personalized financial advice could play an important role in engaging with those who do not traditionally seek our financial advice. This could play a key role in empowering women as they plan for retirement, helping to close the glaring gender pension gap.
So now that the word pension is firmly entrenched in my vocabulary, my goal is not to live life as spontaneously as when I was a teenager. Financial security is something I value more and more as I get older and if that means setting aside a little each month for stability in the future, so be it.
1 Research conducted by Opinium research between January 7 and January 17, 2022 among 14,052 men and women in the United Kingdom, Germany, China, Taiwan, Hong Kong, Japan and Singapore.
2 Who? June 2022