In just 30 years’ time life expectancy is set to reach 100 – with experts around the world suggesting that retirement ages need to increase so that people have enough money to live on in later life.
And new research has revealed that delaying your retirement age by five years could boost almost £50,000.
Aegon, a pensions company, found that those approaching age 65 can boost their pension income by two-thirds by deferring their retirement to age 70.
Boost your pension income
The research took an average pension pot (£105,496) and average contributions (£355 per month) and estimated what you’ll get for exchanging it for a standard single life, non-escalating annuity at ages 65, 68 and 70.
The insurer found that:
- Delaying retirement to age 68 can build up an extra £25,542
- This could increase your monthly annuity income by £164
- Delaying retirement to age 70 could add an extra £46,388
- This could increase your pot from £105,496 at 65 to £151,884 at 70.
This means a 65 year old could increase their monthly income by £314 from £457 to £771 per month if they defer retirement and keep contributing to their personal or workplace pension until age 70.
Taking out an annuity is one of several pension options at retirement.
Retirement age to reach 70
Working on to 70 may eventually become the ‘norm’ as people choose to stay in employment for longer.
Changing work patterns, questions over the generosity of the future of the state pension, and the need to supplement retirement income means that people are working longer into ‘traditional’ retirement than before, either because they need to or simply because they want to.
The Aegon survey comes in the wake of another report from the World Economic Forum, which proposes that the retirement age should increase to at least 70 in rich countries by 2050 as life expectancy rises above 100.
With the age that people qualify for the state pension rising, working until 68 or perhaps even 70 may be required to bridge the gap until you receive the state pension.
Even if you qualify for it, you might decide to defer taking the state pension while you are still working.
How much will you need to retire?
Retirement income figures quoted in the Aegon research are actually relatively modest and you may need a larger initial pot to cover all expenditure when you stop working.
Combining the annuity income at 65 with two people getting the basic state pension would generate annual income of around £18,200.
When Which? looked at how much you will need to retire at the start of 2017, we found that households spent a shade under £2,200 a month, or around £26,000 a year.
This covers all the basic areas of expenditure and some luxuries, such as European holidays, hobbies and eating out. Aiming for this level of income will provide a good platform for your retirement.
You’d need £39,000 a year if you include luxuries such as long-haul trips and a new car every five years.
Our guide – reaching your saving targets at different ages – can help you gauge if you’re on track for a comfortable retirement.