High net-worth individuals underestimating amount needed for ‘comfortable’ retirement

High net-worth individuals (HNWIs) in the UK are significantly underestimating how much money they will want in retirement, misjudging by almost £300,000 on average, according to research from Saltus.

The Saltus Wealth Index, which surveyed more than 1,000 people in the UK with investable assets of over £250,000, found that 11 per cent of HNWIs correctly estimated that a pot of £800,000 is needed for a comfortable retirement.

When asked about the amount of pension savings they would need for a comfortable retirement, the average respondent thought a pension pot of £539,000 would be enough to feel financially secure in their later years.

However, if pensioners were to follow the 4 per cent rule, a pot of this size would only provide an income of around £22,000 a year, £3,000 more than the living wage salary of £18,525 and not what most people would describe as ‘comfortable’.

To achieve a ‘comfortable’ retirement income of £33,000 – as calculated by PLSA and researchers at Loughborough University – a pot of £825,000 is needed, 1.5 times the size of the pot respondents thought they will need.

When asked what they think would be a comfortable retirement income for a couple, respondents said £55,000 per year, for which a pot of £1.4 million is needed, more than double the amount estimated by respondents.

Around one in eight (16 per cent) believed they would need more than £70,000 a year – which would require pension savings of £1.75 million.

Just one in 10 respondents estimated they would need a pension pot of more than £800,000 for a comfortable retirement.

While overall around 90 per cent of respondents underestimated the size of the pension pot needed for a comfortable retirement, those aged 25-44 and those with a lower net worth underestimated by the most.

Saltus partner, Michael Stimpson, commented: “Our research reveals a huge gap between expectation and reality when it comes to how much money is needed for a comfortable retirement.

“We can see that the vast majority of respondents are underestimating by quite some margin. This is especially worrying given inflation is now at 9.1 per cent and rising. In the short term at least, these inflationary pressures will only increase what people feel they need to spend to live comfortably.

“Moreover, with rising life expectancy, pension pots are going to have to last longer and longer. All taken together this highlights the importance of financial planning and saving for the future, no matter your level of wealth.”

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