Millennials are underestimating the pot they will need at retirement by £373,000

11th November 2015


Millennials expect to be able to retire at 62 and are underestimating their life expectancy by more than 10 years, leaving them in danger of an impoverished old age.

According to a new study by BlackRock, 25-34 year-olds are miscalculating the pot they need at retirement by £373,000.

The latest BlackRock Investor Pulse survey reveals that Britain’s 14 million millennials are likely to be working and living many years longer than they anticipate.

One in five millennials will live to see their 100th birthday yet they predict they will only live till they are 79.

A 30 year-old today can expect to live till around 90 years of age. This confusion could lead to a significant retirement shortfall.

In terms of income in retirement they claim they will need £27,000 annually and believe a pot of £167,000 will get them there. In fact, to last them throughout retirement they’ll need a pot of £540,000.

When asked how they felt about saving, millennials said; responsible (48%), purposeful (36%) and relaxed (29%), all very positive emotions.

However, when asked the same question about investing, they said they felt; cautious (38%), worried (28%) and anxious (27%).

They have more than two-thirds of their savings, outside a pension, sitting in cash (68%), but see their ideal amount as half of that (38%).

Millennials draw a distinct line between saving and investing. They also choose to hold high levels of cash in their bank account despite having substantial debt levels. On average they have £3,850 in debt (excluding mortgage debt) yet, over the last year. Of those with savings, they have an average of £1,900.

Saving towards their own property is high up on the priority list for 25-34 year olds with three in 10 concerned that housing costs are a risk to their financial future.

Yet, one in five (22%) would take equity out of their home or move to a smaller home if their retirement income turned out to be lower than expected. Buying a home and saving for retirement are the two largest financial commitments that people will make, yet many, especially millennials, view these two commitments as mutually exclusive.

On average, millennials believe that the right age to start saving for retirement is 25, yet half (48%) have not yet started and one in five (21%) have no savings at all.

Six in 10 (59%) millennials do take financial planning seriously and a quarter of them (23%), currently use a professional financial adviser, more than any other age group.

When shown the returns of the stock market versus cash over the last 10 years, more than half (51%) of millennials said they would invest some or all of it in stocks and shares.

Alex Hoctor-Duncan, savings and investments expert at BlackRock, says: “The survey shows that millennials completely separate saving and investing from their debts.

“In some ways it’s not surprising as technology has made it easier than ever before to buy now and worry about the consequences later. The real opportunity is to make savings as easy as it is to get into debt and see the two as connected.

“Interest on credit card debt averages 10%, way in excess of the average interest of around 1.5% earned on savings in a bank account, therefore the first step to having healthy finances is to pay down any outstanding debts.”

He adds: “Without a doubt, the biggest challenge that this group faces is multi-tasking their finances. A good place to start is to have a plan for their savings, investments and their debt.

“Millennials are the first generation that will have to rely not only on their finances but the way in which they manage them. They haven’t the option of learning from the past, as their grandparents and even their parents will have had a very different experience.

“If a 25 year old invested just £1 a year for 40 years into the FTSE All Share Index, this could give them £3 a year on average for the rest of their lives. For a 35 year old, this decreases to £2 a year.

“Put simply, the earlier you start and the more you can invest could make a big difference over the long-term.”

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