We’ve recently witnessed a positive shift in pension attitudes. Research from True Potential Investor’s Tackling The Savings Gap Q3 report shows that just 19% of 24-34 year olds didn’t contribute towards their pension – showing a reduction of 7% on Q2’s 26%.
However, while more young people are preparing for their retirement, it seems many of us are putting our retirement dreams on hold. The report found that while a quarter of 25-34 year olds plan to spend their 25% tax-free lump-sum on a round-the-world trip, just 2% of over 55s said they’d do the same.
Clearly, young people and those close to retirement age have very different attitudes to their retirement savings. But it can be one of the necessities that people should take more seriously. Moreover, retirement planning doesn’t just involve traveling. There can be other essential things as well like medical conditions, assistance, or investment in a memory care community, depending on the future health and wellness. So, a lack of retirement planning can affect your financial stature in old age.
When you decide to opt for a retirement plan, or any other investment towards a particular goal, you ought to be thorough with what you’re putting your money down on. If it is a mutual fund or SIP you’re starting, you will have to take into account every detail presented to you including risks, expense ratios, and more; you do not want to have finance-related worries later when you’re old. Say, you decide to set up a gold IRA, you should be well aware of the 5 year rule with roth iras if that’s the kind you select. This is a case where a key aspect of retirement planning goes unnoticed. As a result, you might have to incur income tax and pay penalties, which would depend on the contributions you made. If you have put in a large amount, you might have to pay higher towards deductions.
It could be argued that this is because those over 55s have a more realistic view of their savings and the potential it offers. As the ISA investor provider’s report found, the average 55 year-old has a 51,446 pension pot by the time they reach retirement, delivering 12,900 tax-free. If they were to use this tax-free sum to purchase a trip, they’d only travel halfway across the South Pacific – shortening the round-the-world trip to just 30 days. This is just for a single passenger – for a couple, the trip would be even shorter.
In fact, the cost of a 120-day world cruise from Miami to Miami costs roughly 48,000* – which is not only more than three times the tax-free sum, but almost the entirety of the total 51,446 pension pot. Perhaps it is this realisation that their existing retirement fund simply won’t stretch to meet our travel hopes.
We’ve also witnessed a change in attitudes to holidays in general. The survey found that just 10% of over 55s planned to take regular holidays once they retired, while more than triple the number of 25-34 year olds (34%) said the same.
So what can we learn from this? The findings underline the importance of starting your pension pot early, in order to generate enough funds to help us achieve our retirement goals – whether it’s travelling the world or simply living comfortably.
* Based on brochure price of a 120-day cruise with Oceania, staying in an ‘Ocean View’ room
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax rules can change at any time.