Worried If You’ve Saved Enough to Retire? How to Approach a Pension Shortfall

Saved enough to retire

When you’re busy working, retirement can seem a long way off.

However, what you save when you’re working determines the size of your pension when you retire. That’s because the State Pension is no longer enough to rely on.

In this article, we’ll look at how to check your pension savings and what to do if you have a shortfall.

How Much Money is Enough to Retire?

Your spending habits in retirement are likely to be different from those during your working life. As a result, you’ll have to estimate what you expect to spend when you’re retired.

Remember there’s a difference between what income you need and what income you want. You’ll need enough income to cover your day to day living costs, like groceries, utility bills and insurance. You also have to factor in if you’ll still be making mortgage payments or paying rent.

However, you’ll probably want enough income to maintain a certain standard of living. This could include spending on activities that you now have time to enjoy like international travel or new interests. What’s more, you may want to help family members get on the housing ladder or build up their savings.

How to Work out What Pension Income You’ll Have

After seeing what you’re likely to spend, the next step is to plan your income.

The pension income you can expect will depend on what pension savings you have, how much tax you’ll pay, any benefits you claim and the rate of inflation.

To find out what this may be for you, you should get forecasts for each of your pensions:

State Pension

A State Pension forecast will show you how much you could receive, when you’ll be able to get it and how you could increase it (if that’s possible). In addition, the state pension age is under review and so may be different for you in the future.

Workplace Pension/s

If you’re currently in a workplace pension or you have been in the past, ask your employers for a forecast of what you could receive from these pensions.

Personal Pension

If you have a personal pension ask your provider for an estimate of your pension at retirement.

Remember to also consider the tax implications of your pension pots and what your money will be worth after inflation.

What’s a Pension Shortfall?

When you have a gap between the retirement income you want or need and the pension you’re forecast to receive, you have a pension shortfall.

As a result, you’re unlikely to meet your plans for retirement. However, if you know you’ve got a shortfall, you can start to fill that gap.

How to Make Up a Pension Shortfall

In simple terms, you have to save more to make up a pension shortfall.

However, the closer you are to retirement, the fewer options you have to close that gap. That’s because there’s less time for the value of your pension investments to increase through compounding. So you’ll need to add a much larger amount into your pension to make up any shortfall.

Ways to save more include:

  • Joining your workplace pension. With auto-enrolment, every employer should now provide a workplace pension.
  • Paying more into a workplace pension if you’re already a member. Employers often match employees contributions too.
  • Setting up a personal pension. Options include Stakeholder Pensions or Self-Invested Personal Pensions (SIPPs).

NB: The value of the investment can go down as well as up and you may not get back as much as you put in.

If you would like to speak to us about advice for your pension or retirement plans please email us [email protected].

Scroll to Top