High net worth (HNW) individuals in the UK are underestimating exactly how much they will need to retire comfortably, research by wealth management firm Saltus found.
In its Saltus Wealth Index, the company discovered HNWs believe they will need a pension pot of around £539,000 ($675,700, €631,000) to enjoy a “comfortable” retirement.
But without taking into consideration the state pension, this would leave them with an income of approximately £22,000 a year.
The wealth firm said calculations by the Pensions and Lifetime Savings Association (PLSA) show that to achieve an annual income of £33,000, they would need to have a pot of at least £825,000; and at least a pension of £1.4m to provide £55,000 a year – more than double of the estimated sum.
Just 11% of respondents correctly predicted they would need a pot of around £800,000 – leaving the vast majority of HNWs £300,000 short once they stop working.
Age and net worth discrepancies
The survey also found there were differences in the expectations that younger and older HNWs will require in retirement.
While an overall 90% underestimated the pension size needed to cater to their later life needs, HNWs aged 25-44 and those with a lower net worth were the ones with the lowest estimates.
Those with investable assets of between £250,000 and £499,999 believe a pot of £425,000 will suffice; while those worth more than £3m said they would need a pension of just under £700,000.
Similar projections were reported by those between the ages of 25 and 44 and those aged over 65, respectively.
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.”
