September 2021
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AAM Magazine
September 2021
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Investors globally are not saving enough for retirement

The Schroders Global Investor Study 2017 a survey of over 22,000 investors across 30 countries – has found that, across the globe, investors are not saving enough for retirement – those yet to retire are saving 11.4% of their annual income when they feel they should be saving 13.7% – and two thirds (66%) of retired investors wished they had saved more for retirement, according to the London-headquartered multinational asset management firm.

Pension saving gap

On average, globally 66% of retired investors wish they had saved more, including 22% who wish they had saved a lot more. This is a trend that is prevalent across the countries surveyed and especially in Asia.

This finding is not surprising given that the survey also found that investors feel they are not saving enough. On average, investors yet to retire are saving 11.4% of their income which includes 9.9% in Europe, 13.0% in Asia and 12.5% in the Americas. However, to live comfortably in retirement, they feel they should be saving an average of 13.7%, which includes 12% in Europe, 15.3% in Asia and 15% in the Americas. Which raises the question, how will they fill this gap?

One way in which investors could save more is to work for longer and investors appear to be cognisant of this. When asked at what age they wanted to retire and at what age they realistically expected to retire, investors stated they want to retire at an average age of 60.2 years old, but realistically expect to retire at 63.0.

How are investors saving for retirement?

The survey found that the main source of retirement income, globally, was/will be savings and investments. The top sources of retirement savings are:

  • Savings and investments (20%) _
  • State pension (19%) _
  • Company pension (18%) _
  • Personal pension (12%) _

With other sources including, income from property (i.e. rental income) (7%), money from relatives (7%), part time job (6%), inheritance (5%) and releasing capital/equity from their homes (4%). One trend that the survey highlighted, of those who are yet to retire, was that 63% are hoping to work part time, for an average of 3.4 years before fully retiring. Also, 30% want to turn their hobby into a source of income after they do retire. _

How do millennials compare?

The feeling of not currently saving enough for retirement is more prevalent amongst millennials. On average, compared to older non-retired investors, millennials save slightly less (11.2% vs. 11.6%) of their income specifically for retirement, and to live comfortably in retirement, they feel they should be saving an average of 13.2% – slightly less than older non-retired investors who feel they should be saving (14.1%).

When it comes to how millennials differ in how they are going about saving for their pension, millennials feel sources of retirement income will be mixed, but they are less likely to be reliant on:

  • Company pensions (15% vs. 20%) _
  • State pension (14% vs. 21%) and _
  • Other savings (19% vs. 21%) _

They feel they are more likely than the older generations to be reliant on various other sources of retirement funds, like: _

  • Part-time job (7% vs. 5%) _
  • Income from property (9% vs. 6%) _
  • Releasing home equity (6% vs. 3%) _
  • Money/allowance from a relative (10% vs. 5%) _
  • Or inheritance (6% vs. 4%) _

Lesley-Ann Morgan, global head of defined contribution and retirement at Schroders, says: _“It’s well known that people aren’t saving enough for retirement but this study shows that even those who are established investors are not putting away enough money. There’s also a strong message from those who have already retired: ‘I wish I had saved more’. The pension savings gap is further compounded by the fact we’re in an age of low rates and low returns – to reach their goals, people will need to save even more than savers did in previous generations.

“The study shows that globally, investors are only putting away 11.4% of their income. Our analysis shows that someone who started their retirement saving at age 30 would need to save around 15% a year if they wanted to retire on 50% of their salary at 60, the age at which they want to retire, according to our study.”_

“The most powerful tool available to savers is time. Start saving at an early age and it makes an incredible difference to the eventual size of your retirement pot. The miracle of compounding, where you earn returns on your returns, adds up over 30 or 40 years of saving.”

As of September 30 this year, Schroders had US$577.3 billion in AUM.