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High Net Worth Individuals underestimate money needed for a comfortable retirement by £300k

by Uma Rajagopal
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  • HNWIs estimate they’ll need a pension pot of £539,000 to achieve a ‘comfortable’ retirement – but a pot this size would provide an income of less than £22k/year, without the state pension
  • Pension savings of £825k are needed – 1.5 times the estimate – to achieve a comfortable retirement of £33,000/year
  • To achieve the £55,000 /year income respondents think a couple would need for a comfortable retirement, a pot of £1.4m is needed– more than double the estimated sum
  • HNW respondents in their 30s and 40s, and those with fewer assets, have the most unrealistic expectations when it comes to retirement savings

High-net-worth-individuals (HNWIs) in the UK are significantly underestimating how much money they need for the retirement they want, misjudging by almost £300,000 on average, according to the latest research from Saltus.

The Saltus Wealth Index surveyed more than 1,000 people in the UK with investable assets over £250,000 to understand their thoughts and feelings about the UK economy, their own wealth and what matters most to them personally.

Just 11% of HNWIs correctly estimated that a pot of £800k is needed for a comfortable retirement

When asked about the amount of pension savings they would need for a comfortable retirement, respondents thought a pension pot of £539,000 would be enough to feel financially secure in their later years.

However, if pensioners were to follow the 4% rule[1], a pot of this size would only provide an income of around £22,000 a year – just £3,000 more than the living wage salary of £18,5253 and not what most would describe as ‘comfortable’. Even including the £19,250 a couple might expect to get from the state pension, the income they will derive would fall well short of their aspirations.

To achieve a ‘comfortable’ retirement income of £33,000 – as calculated by PLSA and researchers at Loughborough University2 – a pot of £825,000 is needed, 1.5 times the size of the pot respondents think they need.

When asked what they think would be a comfortable retirement income for a couple, our respondents said £55,000 per year, for which a pot of £1.4m is needed, more than double the amount estimated by respondents. One in eight (16%) said they would need more than £70,000 a year – which would require pension savings of £1.75m.

Just one in ten of respondents estimated they would need a pension pot of more than £800,000 for a comfortable retirement.

Older people and those with the highest net worth are the most realistic

While overall around 90% of respondents underestimated the size of the pension pot needed for a comfortable retirement, those aged 25-44 and those with a lower net worth underestimated by the most.

Those with investable assets of between £250,000 and £499,999 think they would need a pot of £425,000 on average – this would provide an annual income of just £17,000. Those worth £3m+ think they’d need a pot of £698,000 – which is still a low estimate, but much closer, as it would provide an income of just under £28,000 a year.

Similarly, those aged 25-44 thought a pension pot of just over £500,000 would be enough, while those aged 65+ estimated they’d need almost £689,000.

Michael Stimpson, Partner at Saltus, said: “Our research reveals a huge gap between expectation and reality when it comes to how much money is needed for a comfortable retirement.

“We can see that the vast majority of respondents are underestimating by quite some margin. This is especially worrying given inflation is now at 9.1% and rising. In the short term at least, these inflationary pressures will only increase what people feel they need to spend to live comfortably.

“Moreover, with rising life expectancy, pension pots are going to have to last longer and longer.  All taken together this highlights the importance of financial planning and saving for the future, no matter your level of wealth.”

To read the Saltus Wealth Index in full click here.

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