High-earners underestimate the amount they'll need for a comfortable retirement

According to new data, high net worth people significantly underestimate how much money they will need for a comfortable retirement, and many of them fail to save enough

The wealthy in the UK are underestimating by nearly one million the amount they must contribute to their pensions in order to have a comfortable retirement.

According to new data from Saltus, high net worth individuals (HNWI), who are defined in this context as those who have more than £250,000 in liquid wealth that could be managed or invested, think they will only need a personal pension pot of £660,000 to live comfortably in retirement, but in fact, they will require at least £10.5 million.

According to Pensions UK's (formerly the PLSA) retirement living standards report, a single person needs to earn approximately 43,900 annually in order to be financially independent and still enjoy some luxuries in retirement.

According to Saltuss Pension Calculator, a retiree would require a pension pot size of approximately 1.5 million to support this annual income.

For savers who are older than retirement age, the pot balloons.

Taking inflation into consideration, a pension fund would need to be approximately 2.5 million dollars in order to provide a comfortable retirement for a 44-year-old today.

According to the average response of 2,000 HNWIs surveyed, a pension fund of £663,308 would be sufficient to support a comfortable retirement.

Some respondents believed this would be less; 18 percent assumed that a pot of between 401,000 and 600,000 would be sufficient, while 13 percent believed that a pot of between 200,000 and 400,000 would be sufficient for a comfortable retirement.

According to Saltus partner Mike Stimpson, "we're seeing a clear disconnect between expectation and reality in retirement planning."

"A lot of high earners believe they are on track, but the results show otherwise. The majority of people are not reaching their retirement objectives, which is alarming, particularly since pension funds are being used more and more to support families or pay for growing living expenses.

Additionally, according to Stimpson, the changes to inheritance tax that make unused pensions count toward an estate will "further complicate" pension pot planning.

According to him, it "may make pensions less appealing as a tool for wealth transfer, especially for high net worth individuals who depend on them to transfer wealth."

Are British people saving enough for a comfortable retirement?

According to Saltus' wealth index, the majority of pension savers will not see their pensions grow sufficiently to achieve a comfortable retirement, with some experiencing shortfalls of up to 950,000.

The average 64-year-old contributes 17,025 annually to their mean pension pot of 518,119, according to data.

Their pension pot would increase to about 611,618 by the time they retire, assuming a cautious 4 percent return on their investment. This would leave a startling 952,027 gap between their pots and the amount needed for a comfortable retirement.

If one assumes a life expectancy of 100, the shortfall goes down to 526,538 after subtracting the amount received from the state pension, which is roughly 16,000 annually.

The average 44-year-old, on the other hand, has a little more time to bridge the gap between their retirement lifestyle and their pension savings.

With an average pension fund of 532,906 and 30,239 contributions per year, a 54-year-old would have 1,263,302 in total when they retire. But as a result, they fall 738,296 short of having enough money for a comfortable retirement.

Fortunately, the deficit drops to just 193,634 when the amount they will receive from the state pension is taken into consideration. The age of 54 gives people the opportunity to increase their pension funds and achieve a comfortable retirement with a few wise saving decisions.

On the other hand, the typical 44-year-old is much less concerned about pension deficits.

The average pension pot for Britons aged 44 and over is 498,276, to which they contribute 35,105 annually. Saltus projects that they will have 2,562,215 by the time they retire, with a 292,929 shortfall in their individual pension, assuming the same investment returns and a 2.5 percent inflation rate.

On top of these contributions, however, the state pension eliminates the shortfall, ensuring that the average 44-year-old in the UK will accumulate a pension fund sufficient to ensure a comfortable retirement.

However, as the Institute for Fiscal Studies noted in their Pension Review, there are growing concerns that, in the absence of reform, maintaining the state pension may become unsustainable.

Therefore, it may be prudent for savers to ensure that they will have a sufficient pension fund without government assistance in order to avoid being caught off guard.