People globally expect to spend an average of 34 percent of their retirement income on basic living expenses, but the reality for retirees is that they require nearly 50 percent.
This disparity is most pronounced in the Americas where, on average, non-retired people are expecting to spend 32 percent of their annual income on living expenses.
Instead, basic living costs in the Americas accounts for 53 percent of retirees’ incomes.
In news that surprises very few 401k advisors, Schroders’ Global Investor Study 2018 reveals a significant gap between people’s expectations and the financial realities of a life in retirement overall.
Retirees are receiving a lower income in retirement than people approaching retirement currently expect, with this difference most evident in Asia.
Under half (43 percent) of all retirees admitted that a little more income would be helpful, while 42 percent stated they have enough income to live comfortably in retirement.
People closer to retirement who are aged 55 and over may also be in for a shock by expecting too much of their retirement income.
They predicted that they will need an average of 74 percent of their current salary or income to live comfortably in retirement.
In truth, retirees globally are, on average, receiving 61 percent of their final salary annually.
The contrast is greatest in Asia, with retirees receiving 59 percent of their final salary, while people approaching retirement are expecting 76 percent.
The gap was smallest for investors in Europe, with retirees receiving 63 percent of their final salary, compared to an expectation of needing 72 percent among those close to retirement.
Perhaps an indication that their final income may not stretch far enough, retirees globally are continuing to invest significantly, allocating 19 percent of their entire retirement saving to investments.
In contrast, those yet to retire only anticipate investing 9 percent of their retirement savings.
Investors in Asia had the most realistic expectations of how much they are likely to spend on living expenses, expecting it to consume 32 percent of their income in retirement.
In reality, it is only slightly more at 38 percent for retirees in Asia on average.
“There is a real danger that people globally are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement, particularly in the current environment of low returns and increasing inflation,” Lesley-Ann Morgan, Global Head of Retirement at Schroders, said in a statement. “There is no magic wand for people. To avoid facing challenging financial circumstances on retirement, they need to recognize the need to start saving as much and as early as possible.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
