The FINANCIAL -- UK. Aviva’s latest Real Retirement Report reveals that for today’s 17.6 million over 55s, each year of retirement is funded by just under two years of work.

The report, released on September 8, looks at the "financial equation" behind retirement, and compares the average length of time in retirement to the average working life. The findings highlight the increasing problems the UK will face due to the trend towards people living longer while significantly under-saving for retirement. 

Financing retirement – the financial equation

Today’s over 55s will live for an average of 88 years, typically retiring at 63 years and six months. With an average of 44 years in work and a retirement lasting 25 years, each year of retirement is funded by just under two years of work. This is a difficult imbalance considering how little most people save towards their retirement every year.

Looking to the future

Even more worryingly, people starting work today will live for longer, and are likely to start working later. Those hoping to follow in their parents’ footsteps and enjoy an early retirement at 60 could be retired for almost as long as they are working. So each year of retirement would need to be funded by just over a year of work.

Financing retirement

The largest single source of income for the over 55s is the Government Pension (24%) followed by employer pensions (16%) and wages (13%). However, as the Government has indicated that it will be looking more towards self-funding of retirement and fewer companies are offering generous pension schemes, this does not bode well for future generations.

Clive Bolton, "at retirement" director for Aviva, comments: “Many over 55s are worried about maintaining their standard of living and as today’s average retiree is looking to finance every year of their retirement with just under two years of work, these fears are justified. This financial equation is very worrying and simply doesn’t add up! 

“The equation becomes even more concerning, when you realise that the average person starting work today will live for longer – thus reducing the ratio of working years to years spent in retirement even further. Currently, the biggest income source for over 55s is the state pension but with longevity increasing, the Government has acknowledged that it will need to review the way it provides later life financing.

“All these factors highlight the simple fact that as a nation, we need to save more for retirement. With the high cost of living, we can’t all afford to put substantial amounts away each month but even small amounts add up over the years and will help to ensure that retirement is not characterised by a struggle to survive on a tiny income.”

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