If you think retirement is all about relaxing and having fun, then you have the wrong idea, claims a pensions expert.
Holidays, taking up hobbies and spending more time with the family or loved ones are the main desires when approaching retirement.
But one leading thinker argues that this rose-tinted view of stopping work for one long round of relaxation gives savers the wrong idea about spending their pension savings.
“The idea that somehow you deserve this sort of period of extended recreation for 30 years and that it’s financially sustainable has to be challenged,” said Martin Fahy, Association of Superannuation Funds of Australia.
Speaking to the annual conference of trade body the Pension and Lifetime Savings Association, he explained workers should have a lifetime savings target as the amount of money they need to put aside to pay their living and recreation costs in retirement.
Setting a savings goal
“If you don’t have a house over your head, it almost doubles the amount that you require,” said Fahy.
“People want to experience retirement as an emotional construct, not as a rational construct. The association of retirement with recreation is the biggest problem as is an attachment to the family home.”
The notion of setting a savings goal for retirement is becoming popular with pension experts.
Tim Sharp, a policy officer with the Trades Union Congress, told the conference that lifetime savings targets could be useful as they look at the lifestyle that people might.
No pot of gold at pension end
“The looming problem is people getting to retirement are unable to continue anything like the lifestyle that they used to have if nothing is done about helping people calculate what they have to save.
Selling the idea that workers must cut back their spending to put aside money to fund retirement, only to find that when they give up work that the pot of gold they were expecting isn’t there is not easy.
PLSA steering group chairman Richard Butcher agrees savers need to separate their image of retirement and recreation.
“We need to re-engineer the system. If we can ensure people get to that minimum level, so that they’ve at least got a basic standard of living, then we can build on that,” he said.
