If you’re not yet retired, then the reality of what your retirement will look like might be a bit vague. It doesn’t help that our brains generally don’t do well predicting realistic future situations.
One reason is that we simply can’t predict the future, nor are we able to place ourselves easily in our future self’s shoes. The other is that we often lack the information needed to make even an educated guess.
This is supported by the findings from our latest ING International Survey Savings 2019, which looked at people’s thoughts on their savings and retirement.
One important insight tells the story of the uncertainty surrounding savings and pension funds. Many don’t know how much or even if they are saving into a pension fund.
So to help make things clearer, we’ll list four questions you can ask yourself to figure out which pieces of information you’re missing.
1. Do you think the state pension alone will be enough?
Many state pensions are often indicated as quite low, with the average pension of countries in the Organisation for Economic Co-operation and Development (OECD) paying only 63% of what a fulltime average earner makes.
That either will cover the absolute basics, or sometimes maybe not even that. It is therefore often necessary to have savings of your own. Whether your costs will be covered depends on the country you live in. Some countries, like the Netherlands, have much more generous pension plans.
It will also depend on how you want you spend your retirement and the standard of living you’ll want to have.
To find out more about state pension in your country, you can start by looking at the following sources:
2. Do you have a pension fund?
In most cases, depending on which country you live in, the answer will be yes even you don’t know about it.
In many countries, your employer will contribute to a pension plan for you. This will be a certain percentage of your income each time you get paid.
Previously, you had to specifically opt in to a workplace pension via your employer, but many didn’t realise. In the past decade, many countries have adopted automatic enrolment.
But it’s not an entirely new concept. Australia has had this since the 1992.
3. Are you saving enough into your pension fund?
In Europe, about three in ten say they don’t have any savings and what’s even more dire, 51% admit they either occasionally or most of the time run out of money before their next payday.
This means that many might not have anything left to save towards their retirement and 36% say they don’t plan for retirement in addition to state, employer or other contributions.
But there are two important considerations:
a. How much is your employer contributing?
When you are auto-enrolled to a workplace pension, you are put on a default percentage. But you can choose to change that percentage to a certain degree.
While this means your take-home pay will decrease ever so slightly, you can benefit from a larger fund later on. Additionally, employers often match the percentage you contribute.
To give an example, if you contribute 2% of your income, then your employer could be matching that with 2%. If you would increase your contribution to 4%, your employer would also contribute 4%.
b. What sort of retirement do you want?
Do you want to keep earning money in retirement? Do you want to travel? Do you want to put up your feet and relax? Do you want to retire early?
Depending on what you want in retirement, you’ll need to adjust your pension savings. If you want to have luxurious retirement years, you may need to increase the amount you are saving right now.
Many, however, don’t expect to have the same living standard as when they were working (38%). And the reality could be even worse. Of the people who are currently retired, half say they don’t enjoy the same standard of living they had when working.
So deciding on what you want in retirement as early as you can could help you form a plan to achieve your objectives.
4. How complicated is it to set up a pension fund?
It can seem complicated to get started on pension saving, but in reality it isn’t that hard. You just need to take the time to gather some information and look at your options.
That’s easier said than done, though. People have a natural tendency to shy away from complicated matters, postponing taking any action on them.
But if you postpone pension saving for too long, you may run out of time and you could lose control over what your retirement will look like.
So start a conversation with your employer, talk to family, friends or an advisor, do some research and then set up your pension fund.
And once it’s all set up, you probably won’t have to think about it anymore until your retirement comes knocking. Then it’s time to reap your rewards.