Gen Z believe they would need almost double the annual income that Boomers consider sufficient for a ‘comfortable’ retirement, yet 21 per cent of Gen Z respondents reported having no retirement savings, AJ Bell research has found.

According to the research, on average, Gen Z, those aged between 18 and 27, said they would need £46,000 in annual income to enjoy a comfortable retirement, compared to those aged between 60 and 78, Boomers, who thought that £24,000 a year would be sufficient.

To contrast this, a fifth (21 per cent) of Gen Z respondents stated that they currently have no retirement savings, compared to 15 per cent of Boomers yet to retire who said the same, which AJ Bell senior pensions and savings expert, Charlene Young, said is “concerning”.

Despite differing expectations about the income needed for a comfortable retirement, Young said that young Brits are “optimistic” about reaching an annual retirement income of £46,000.

The research found that those aged 18 to 34 anticipate accumulating around £460,000 in retirement savings on average by the time they retire, compared with the £200,000 currently held by those aged 55 and over.

In terms of funding their retirement, the research showed that confidence in the state pension among young people is low, with its research revealing that 20 per cent of those aged 18-34 said that they intend to use the state pension to fund their retirement, compared to 46 per cent of those aged 35-54.

“This suggests that younger people are more aware of the need to fund their own retirement and wish to put away their own money to achieve the lifestyle they desire,” she explained.

Indeed, 64 per cent of 18- to 34-year-olds said that they intend to use some cash savings to fund their retirement, 34 per cent said they intend to use money from a defined contribution workplace pension, and 33 per cent stated that they would be using a Stocks and Shares ISA.

The research, however, showed that the state pension was the most popular choice of funding retirement among those over 55 who had not yet retired, highlighting a difference in retirement expectations between age groups.

Of this group of over 55s who have not yet retired, 63 per cent said they would fund their retirement with cash savings, while 29 per cent expect to use money from a pension scheme.

The research also showed that starting early can make a significant difference: for example, if an individual starts saving at the age of 25, they would need £373 per month into their pension, together with an employer, to achieve an annual retirement income of £27,000 from their pension pot by age 67.

This is assuming a 3 per cent salary and contribution growth per year and modest investment growth of 5 per cent a year before charges.

However, if an individual did not start contributing to their pension until age 30, the total payment per month would need to increase to £438 per month, while at age 40 this would increase to £850 per month, and would be higher still at £1,200 at age 45.

This could make saving for retirement harder, as Young argues that many may have more immediate short-term outgoings to consider and saving lump sums could be “challenging”.

---