Despite recent progress in retirement savings, millions of Americans could still be on the path to financial hardship in retirement, according to a new NRF report. The proportion of adults in pension poverty has declined from last year, but experts say too many workers are not saving enough to ensure they can even afford a “modest” standard of living in retirement. High levels of living costs, energy, and low pension contributions continue to be issues.
Millions Are Still at Risk of Retirement Poverty
The new National Retirement Forecast (NRF) shows that around 12.2 million adults, roughly 31% of the population, are currently on track to fall below the minimum retirement living standard.
Alternative Savings Are Helping Some People
This is partly because of an increase in the number of people saving outside of traditional pension arrangements. Some households are making their savings account and other investments a part of their retirement planning and thereby enhancing their prospects.
Home Ownership Continues to Play a Major Role
A greater proportion now expects to own their home outright at retirement, compared to the past, according to the report. Retirees who do not have mortgage payments in their older years might be able to afford their daily needs and have a minimal standard of living.
Improved Retirement Projections
The minimum retirement standard was achieved by a greater number of households in the reporting period as a result of falling energy costs. But experts warn that such gains could soon be undone by future energy price rises.
Lifestyle Costs More Than Many Realize
The report suggests that it takes about £13,400 a year for one person and £21,600 a year for a two-person household to live a minimum lifestyle in retirement. A large number of workers are not saving enough to accumulate this amount of retirement income.
Experts Want Pension Contributions Increased
Scottish Widows urges automatic workplace pension contribution rates to be increased from 8 per cent to 12 per cent. Backers say this would have a major impact on retirement prospects for future generations.
Tens of Thousands to Retirement Pots
The analysis indicates that raising contributions to 12% would lead to an additional average of £40,000 in retirement savings. Over time, the retirement pot of younger workers (aged 22 to 29) may be able to increase by over £100,000.
Pension Poverty Could Be Cut Dramatically
A high level of contribution rates for auto-enrolment would lead to significant reductions in pension poverty rates, in some scenarios down to around 13% from around 32%.
Self-Employed Workers Remain Vulnerable
Many of those who are still at greatest risk of retirement poverty are self-employed or part-time, or unemployed, who might not benefit from workplace pension systems as fully.
Retirement Planning is Not Just a Pension
Financial advisors are seeing more and more people looking to diversify their financial assets by investing in a pension plan, emergency savings, and home equity, as a way to achieve increased long-term financial security.
