In this week’s episode, Jamie Benn and Jason Murgatroyd return to the Mortgages, Money & More Podcast to discuss Myths of Retirement with Craig Skelton.
Myth 1: you can live off the state pension alone.
The background to this is the fact that everybody is generally aware of pensions and what they do. Yet there are so many people that think either they don’t need one or what they have is more than adequate.
The thing we hear more often than anything else is “I’ll be fine. I’ve got my state pension.” But a lot of people don’t realise how much the state pension is going to be. And when they start looking into it, if they haven’t paid enough national insurance, they won’t even get the full amount.
The full pension as we sit here today is just short of £180 a week. That will just about be enough to put food on the table, but you may struggle with anything more than that.
If you look at the way that the cost of living is increasing and what people are paying for their bills… is it really going to be enough? £180 per week, roughly speaking, is about £750 per month. Could you live on that and have the lifestyle you want in retirement?
You could just about get by on the state pension, but it won’t allow you trips away, holidays and treats like meals out. You’ve got time on your hands, but will there be enough money available to do what you want to do?
Myth 2: Matching your workplace pension will give you enough.
So we’ve got the safety net of the state pension as we just touched on. Many people think that having a workplace pension too means they are sorted.
The issue comes when you’re five years short of retirement and finally look at that pension amount – and realise it isn’t enough. Again you could be left in a similar situation where you find yourself falling short of the lifestyle you were planning for. You’ll be able to manage your bills and living costs, but can you afford to take trips abroad or help your kids or grandkids in the future?
If your employer allows you to contribute more towards that pension, it can be a really useful asset for you in the future. But just matching the basic contributions won’t usually give you the level of retirement income that you might expect.
One thing to look at is that some employers set a maximum you can pay in at 8%. So you’ve got 5% from the employee and the employer contributing 3%. But if you do pay more, some employers do match your contributions, which will build up a bigger pot.
When the laws changed and we had to have workplace pensions, it was to give us an incentive to save for retirement. But you can’t rely on minimum contributions. They’re just not going to sustain the sort of retirement that most of us want.
Myth 3: I can just work for longer.
We see this a lot within the mortgage business when we look at retirement ages and mortgage terms, people start thinking, well, I’ll just work longer.
We are all living longer, so it’s definitely plausible that some people don’t want to stop work completely at retirement age. And nowadays it’s much more acceptable for people beyond retirement age to gain employment.
But you’ve got to think about your plans. If you’re planning to work beyond retirement age, then that’s all well and good. But I suspect you will still want a lifestyle where you can enjoy holidays, cruises and hobbies. And some situations can arise that you’re not expecting.
There’s a chance that ill health could completely stop you from working. So it’s much better to build up your pension at a younger age and not risk scraping the pennies together because you’re not able to work.
A few people I know have retired and decided to work part time, which is great to keep them busy and top things up. But again, it’s whether you are physically able to do that at that time in your life.
Myth 4: It’s pointless paying into a pension at my age – it’s too late.
A lot of people say this, where they start to think they haven’t done enough. But rather than face the issue and turn things around, they just carry on.
Even as little as five years before you retire, there’s still a lot you can make with compound interest. You can access a lot of potential growth that will matter to you in the long run.
It’s all about the options that are still available to you. It isn’t ideal that you didn’t start a pension when you were young, but we can still make up some of the difference.
Your pension contributions may be larger and you might need to pay more on a monthly basis, but you can get some consistent growth in the long term that will look after you.
Myth 5: I can plan for retirement without any help from an advisor.
Whether you’ve got a pension or not, there’s a need to speak to an advisor because this is a complex, technical area. You’re not expected to know the ins and outs of how these pensions work and realistically what they’re going to give you in retirement.
People do tend to leave it until it’s too late. And I would stress that we can still talk about your options, because something is better than nothing. The key is getting that advice as soon as you possibly can, which links to the benefits of investing over the long term. When you look at the returns and the rewards of a long term investment, they are phenomenal compared with somebody on a very short time horizon.
Just having that experience is really important – you will get peace of mind knowing that a professional is looking over your plans. We’re here to make sure that what you’re doing will give you what you need at retirement age.