This golden age, so to speak, is reflected in a number of interesting statistics cited by the Daily Mail. For instance, the average pensioner in 1995 received £155 per week between private and state pension payments. By 2015 that number had climbed to £297 (adjusted for inflation). Furthermore, the income gap between pensioners and workers fell from 38% to 7% during the same period. Pensioners today are significantly more well-off than their peers of a decade ago.

The most fortunate pensioners now enjoying their retirements owe their good fortune to a combination of generous defined benefit pension schemes and the new triple lock that was applied to the state pension system this year (2016). But the former is fleeting. Employers are quickly phasing out their defined benefit schemes because these are no longer sustainable. They are being replaced by less generous CARE and traditional defined contribution schemes.

Younger Workers Should Prepare

All of the signs point to retirement being more financially challenging 20 and 30 years from now as compared to the current environment. But that does not mean workers cannot set themselves up for a comfortable retirement. The key is to begin preparing now.

There are a number of important principles younger workers should be cognisant of as they prepare for retirement:

  • Current Spending – It is very easy to spend virtually everything you earn to make life comfortable right now. There is nothing wrong with wanting a comfortable life, but it is better to eschew some of the creature comforts now in order to boost retirement income. All of the luxury items purchased now are not going to help in retirement, so how many of those things should really be purchased?
  • Investment Diversification – An occupational pension is a good place to start to prepare for retirement. But unless a pension is an exceptionally strong performer, it may not be enough to carry you through retirement. Workers need to put money into other investments as well. The key is to diversify. The more diverse your portfolio, the greater your opportunities to earn good returns.
  • Retirement Strategies – It is nearly impossible to succeed as an investor without some sort of strategy in place. Young workers should sit down with a professional who can help them establish a sound financial plan for the future. Individual strategies within the plan can be adjusted along the way in order to maximise financial return.
  • Use of Credit – Lastly, people don't understand how damaging credit can be to the future. Credit is an essential tool that can be very beneficial in a lot of ways. But using credit improperly can saddle a worker with a lifetime of debt that prevents him or her from saving adequately for retirement.

There is little doubt that the retirement picture is changing. As the golden age of retirement draws to a close, younger workers have to start preparing now for what will ultimately be a much different environment. Pension saving is a good start. From there, workers need to develop sound financial plans that include diversified investments and the judicious use of credit.

Sources:

 

  1. Daily Mail – http://www.dailymail.co.uk/money/pensions/article-3792884/Golden-age-retirement-way-bleaker-era.html

 

About Us
Alfred Maki

Founding Partner, Investment Strategist

Alfred is a global investment specialist with more than 20 years’ experience. Having started his career as a trader, Alfred has spent years learning the intricacies of the various markets including stocks, bonds, commodities, consumer financial products, property, and more.