30th June 2014
Young British women are grossly underestimating the amount of cash they will need to fund the retirement they desire, a new study has found.
According to research from fund manager BlackRock, young women aged between 25 and 34 want a household income of £29,000 a year when they finish work – and believe a pension pot of £142,000 will be sufficient to fund. But the reality is they will need well over half a million at £555,556 to reach this goal
But in contrast to all age groups, young women have the strongest recognition that the state will play a limited role in funding their later life. However while young women are more realistic that the responsibility for their retirement lies with them, a worrying 64% have not started to plan for it financially.
The study found that women aged 45 and over put funding a comfortable retirement at the top of their financial priorities whereas for younger generations paying off debts, growing their wealth, saving for a deposit for a new home, paying off a mortgage and financing their children’s education take precedence.
The survey also shows that young women have more than 80% of their savings and investments in cash deposits – the highest proportion of all age groups. In addition, 43% of women who hold cash indicated that they intend to increase their allocation to cash in the year ahead. While they are the most likely age group to take higher risks to achieve higher returns, their allocation to stock investments is conservative at 7%.
Worryingly more than a third of younger women think that cash savings will help fund their retirement income but a cash pot of £50,000 five years ago would only purchase £42,320 worth of goods today as a result of inflation.
Knowledge and advice
More encouragingly, it is younger women, rather than any other age group, that are the most likely to seek the help of a financial adviser to help them plan for retirement.
Juliet Bullick at BlackRock says: “It is clear that there is a huge gap between what income young women say they need at retirement and the steps they are taking to help get them there. Worryingly, they are underestimating the retirement pot they think will fund their desired income in later life by more than £400,000.
“It’s entirely understandable that young women have other financial priorities. There are also some really simple and practical changes that can be made to everyday life to help build up a pot of money.”
Notably, when retired women in BlackRock’s survey were asked to reflect on what advice they would give to their younger self in preparing for retirement, more than two-thirds recommended saving as early as possible.
“We are all living longer, healthier lives and making a plan for how we live it comfortably has never been more important. The survey shows that women who take financial planning seriously are much more in control and confident of their financial future, than those that don’t,” adds Bullick.