The idea of sitting down and working out just how much you will need (or want) to save for retirement is a chore that many just aren’t ready for yet.
It may often feel like a lifetime away, but many women don’t even start planning for their retirement until it’s too late.
There’s just one question that really counts: how much money do you need for the retirement you want? While the figure will be different for everyone, many women are not aware of what this ‘magic number’ should be.
A woman’s financial life journey is fraught with obstacles and there are, unfortunately, any number of physical, emotional and social demands placed on women, linked to life events, that come with short-term financial ‘penalties’ and longer-term consequences. For example, while a young woman is less likely to live at home with her parents than a young man, median rents in England will, on average, snatch away 43% of her salary – versus 28% of his.
Paying for a first home will also cost a woman twelve times her salary – but a man eight times his.
And just to stress the point a bit further: the average cost of living out your later life in a care home in the UK adds up to £132,000 for a woman, compared with £82,000 for a man.
Then, of course, there’s the fact that women still take on the lion’s share of caring responsibilities for children, grandchildren, or elderly relatives. And to do so, they may work fewer hours and lose the ability to save for themselves and their retirement.
With all of these factors combined, it’s no surprise that women can find it harder to save for the longer term.
Taking the time out to review your situation or put money away for your future may feel like a selfish act, especially if you are trying to cover the cost of raising your family or just make ends meet. But knowing whether you are saving enough for retirement will give you one less thing to worry about on a daily basis and will make you and your family feel more financially secure.
Finding the ‘magic number’
The most important thing is to figure out what your ‘magic number’ looks like, by deciding the age you’d like to retire and the lifestyle you’d like to live. Once you know this you can plan how much to set aside each month. In 2019 the Pensions and Lifetime Savings Association developed a set of Retirement Living Standards to help people understand how much they’ll need per year for the kind of lifestyle they’d like in retirement. But before you start to panic, bear in mind that there’s more than one way to save for retirement.
Let’s assume you’re a 35-year-old woman who has been employed in your current role for 10 years. You earn £30,000 a year and your employer pays 3% of your salary into the workplace pension. Over this time you may have built a pension pot worth just under £10,000.
If you plan to retire at 68, you’d need to pay in 15% of your gross (pre-tax) salary on top of the 3% your employer is putting in to get a large enough pot for the moderate lifestyle for individuals outlined above2. So, are you saving enough?
These figures are examples only and they are not guaranteed, they are not minimum and maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.
The State Pension
You’ll hopefully receive the full New State Pension (currently £9,110 for the 2020/21 tax year), which would almost take you into the minimum comfort level in retirement.
But you shouldn’t take it for granted that you’ll get it. You must have made enough National Insurance contributions over your working life to qualify, so if you’ve had a career break or taken maternity leave, you may need to make extra payments to catch up.
Visit www.gov.uk/check-national-insurance-record to check your National Insurance record.
Start small – and seek advice
You might have income from other sources such as state benefits, rental income from a property, an inheritance, or savings in ISAs. Some people think of the property they live in as their pension, and you could certainly use it like this if you are able to downsize or to release some equity from your home when you retire.
If you can’t save as much as you’d like into your pension, start small. A little bit put away early and regularly is a really good first step. Then, as you get pay rises or bonuses, use these as opportunities to increase what you put in.
Think beyond the day-to-day financial planning we know women are so good at. Think about your number, and how you might get there, then it’s just a matter of staying on track.
There are some practical steps you can do today to help you find out your number:
- Talk to your employer about how you can review your workplace pension statement.
- Check your State Pension forecast to make sure you are on track – gov.uk/check-state-pension.
- Check your National Insurance record – gov.uk/check-national-insurance-record.
- Talk to a financial advisor
St. James’s Place Representatives represent only St. James’s Place Wealth Management plc, which is authorised and regulated by the Financial Conduct Authority.
About the author
Sharon Bonfield is Commercial Research Specialist at St James’s Place Wealth Management. She has been at St James’s Place since 2016 and is passionate about getting investing on women’s radars and closing the gender pension gap.
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