We live in a time where better healthcare and living standards mean people are living longer. Though this trend of increasing life expectancy is not a surprise, its impact means that the traditional image of retirement is fading fast.
Our latest global report, based on responses from 16,000 people in 15 countries, reveals that, as we get closer to retirement, our expectations of a time of rest and relaxation get further and further away. In fact, we found that 12% of employees globally expect to work indefinitely. This change in attitude only strengthens the concern that we are failing to plan and properly prepare for retirement.
Instead of looking ahead to a time when working is a thing of the past, many are now faced with having to consider alternatives in order to be able to live comfortably in their old age. In the UK, we have seen a sharp rise in the number of people nearing retirement age who believe the only solution to affording retirement is to work through it, with one in five Britons never expecting to be able to completely hang up their working boots.
The impact of not planning properly now is also having a knock on effect in later life, with as many as a third of people only realising they were underprepared after they entered retirement. Worst still, we have already started to see a trickle-down effect amongst younger generations with 15% of 25-34 year olds saying they will continue working indefinitely.
When we think about what awaits us in retirement, our heads are filled with images of spending quality time with family, global jet setting and vast amounts of spare time to explore new hobbies and reignite old ones. However, the current trend suggests that we are underestimating the amount of money we need to live on in retirement. Almost half of UK retirees who said that they have been unable to realise their plans for retirement, believed this was because they have less money to live on than expected.
People must not wait until middle-age to start planning for retirement, but must start saving as soon as possible. In reality, we found that the latest age people should start planning for retirement in the UK is between 26-30 years old. Yet, despite the improving economic climate, this still feels financially difficult for many.
Of those who are currently retired in Britain, nearly two-fifths admitted that they had not properly prepared for the retirement they planned. Whilst some Britons are starting to realise the state of their finances before they retire, most are still only realising after they give up work. More than half of the UK retirees we surveyed told us that being advised to start saving at an early age was the best financial tip they had ever received.
Still, a comfortable retirement is fast becoming a luxury for today's workers. This is particularly true for people living alone in retirement across the UK, with almost one in three widows saying they will ever be able to afford to retire.
However, working in later life is not always a consequence of poor planning for retirees. Indeed 35% of unretired UK respondents said they aspire to continue working in retirement. At the same time, 27% of people globally said they would like to start a business in retirement, though Britons show significantly less entrepreneurial spirit with just 7% saying the same.
Whatever your retirement dream, today's workers need to start to prioritise long term planning over short term need in order to secure the retirement they want. Whether this means starting to save at a younger age or putting away little and often, planning better now will help to safeguard our financial futures.
To help with this, HSBC have developed four actions that can help savers plan:
Action 1: Don't rush into retirement
There is a view among retired people that they might have been too hasty in giving up paid employment. Nearly two-thirds who entered semi-retirement wished that they had stayed in full time employment longer. This regret is largely for positive reasons, with many retired people seeing work as an important means of keeping the body and mind active.
Action 2: Don't rely on one source of retirement income
Current retirees have three different sources of retirement income on average, wisely choosing not to generate all of their income from one place. Spreading their sources of retirement income and associated risks means that not all their eggs are in one basket.
Action 3: Plan your retirement with family in mind
Rather than family ties loosening in future, the family will continue to be a major consideration in retirement planning, and may even grow in importance for the next generation. While many people aspire to travel extensively during their retirement, nearly half of current workers expect to have some financial responsibilities towards others even when they are themselves retired. This includes on-going financial responsibilities for their adult children as well as supporting frail elderly parents.
Action 4: Be realistic about your retirement outgoings
Many working people assume that their income needs will fall once they enter retirement. Yet 52% of people in retirement have seen no reduction in their outgoings, and 17% have seen their outgoings increase. Although people are familiar with the concept of increasing life expectancy, the consequent increase in later life medical and nursing care costs may not be well understood as people are still not doing enough to prepare themselves for these potential costs.