Savers budgeting for retirement expect to spend a third of their income on living expenses, but the reality is the cost is much higher.
Day-to-day spending on housing, food and general bills soaks up at least 50% of a retirement income, according to a global study by investment firm Schroders.
The study revealed one in six savers do not have enough money to finance a comfortable retirement because the cost of living in retirement takes up more money than expected and they expect a larger income than they receive.
Researchers were told 58% of retirees could do with more money – with 15% with too little to live comfortably and 43% scraping by.
The study also found the over 55s heading for retirement believed they needed 74% of their current salary to spend when they give up work – but on average, most people only receive 61% of their final salary.
Not enough cash to pay the bills
Another surprise for retirees is how much they must keep invested to boost their cash for spending.
The over 55s consider 9% of their pension savings is enough – but the truth, says Schroders, is most people keep around a fifth of their savings invested.
Across the world, most people believe they should save more of their current income to give them more money in retirement.
Lesley-Ann Morgan, Global Head of Retirement, Schroders, said: “There is a real danger that people globally are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement, particularly in the current environment of low returns and increasing inflation.
“There is no magic wand for people. To avoid facing challenging financial circumstances on retirement, they need to recognise the need to start saving as much and as early as possible.
“Leaving retirement saving until you are nearing your 50s and 60s is likely to be too late to make up a savings gap.
“Perhaps as a result of not having enough in retirement, our study showed that retirees were continuing to invest, and this often represented a larger amount than they expected prior to retirement.”