Balancing retirement savings with home ownership aspirations is crucial

Workers are struggling to balance their short, medium and long-term goals. Many are failing to put enough money away for their retirement as a result of focusing on homeownership. It’s not just the younger generation that’s being affected either, and it could mean more people will struggle financially in their later years.

With a focus on buying a house, one in three young workers is saving for a property at the expense of their pension. Prudential research found:

  • 19% of 18-34-year-olds admit their desire to get a home deposit means they aren’t increasing their pension contributions
  • 10% blame student debt
  • 9% say they change jobs too frequently

While the housing crisis tends to focus on the young, it’s impacting Generation X too. BBC analysis suggests the proportion of 35 to 54-year-olds privately renting has nearly doubled in the last 10 years. It means they risk paying rent in retirement, placing further pressure on their finances once they give up work.

Coupled with inflation rising faster than salaries, it’s not surprising that many are focusing on their dream of home ownership or other financial goals over long-term milestones, including pensions.

The introduction of auto-enrolment, which has led to more workers than ever saving into a Workplace Pension, has sought to close the pensions gap. However, research suggests it’s not going far enough and there’s still a lack of understanding around how much should be saved.

The focus on shorter-term goals and a lack of knowledge about retirement finances mean that many people risk falling short. Research from Finders found:

  • 35% of adults say they don’t have a pension
  • 43% admit they don’t know how much they’ll need in retirement
  • 55% estimated that up to £100,000 is enough; compared to the recommended £260,000-£445,000 depending on accommodation costs
  • Almost a third (32%) of Millennials think £50,000 will be enough, as do 25% of Gen X and 19% of Baby Boomers
  • Only 28% are on track to meet their pension goals

The good news is the findings suggest pension savers become savvier to their retirement income needs as they approach giving up work. They also become more confident in their ability to save for a comfortable retirement. However, there’s still a significant gap, with almost six in 10 Baby Boomers believing they will fall short.

  • 80% of Millennials don’t believe they will meet their predicted pension amount to retire comfortably; the average prediction was £126,400
  • 75% of Generation X don’t think they will be able to save the amount they believe is needed to fund their retirement; the average prediction was £188,300
  • 59% of Baby Boomers don’t believe they’re on track for a comfortable retirement in terms of saving enough; the average prediction was £211,800

With the gap between what we’re saving for retirement and our current pension strategies evident, there’s a clear need to balance financial goals. When you factor in the likelihood that more people will be renting during their later years, saving for retirement becomes even more important. It can be a tricky balancing act to secure your finances both now and in the future.

How financial planning can help

Juggling different priorities and saving goals can seem like an impossible challenge. This is where financial planning can help.

Financial planning is about taking your current situation and seeing how it reflects your goals, whether they’re short, medium or long term. By using the data available now, you’ll be able to see what changes you should be making to achieve your aspirations. Having a visual representation of how financial decisions will impact you can make assessing your priorities easier.

If you see putting more of your disposable income into your pension will deliver significant returns that will make your retirement more comfortable, you may decide to make sacrifices now. Alternatively, you may find that taking steps to secure a property and make overpayments on a mortgage is a better option for you.

You can also see the predicted impact of your decisions. For example, whether holding savings in a Cash Individual Savings Account (ISA), pension or investing will be the best choice with your goal timeframes in mind.

Those that are concerned about their finances, from the ability to pay off a mortgage sooner to putting enough away for retirement, can gain confidence with financial planning. Understanding how your finances will change and putting a strategy in place to achieve aspirations can give you peace of mind.

If you’re worried about your finances and your ability to meet long-term financial goals, please contact us. Using our expertise and cashflow modelling techniques, we’ll be able to show you visually how your finances may be affected throughout your life by decisions and events. We can give you the information you need to make financial choices that reflect your life ambitions.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected the interest rates at the time you take your benefits.