My dad retired a few years ago, with a defined benefit pension giving him a guaranteed income for life. With no gold-plated pot of her own, my mum has been developing an increasingly green complexion ever since.
What has happened though, is that mum has decided a longer working life is worth shorter working weeks so she has the time now to chase the sun with her husband, subsequently leaving that green complexion to their son.
With defined benefit pensions all but a thing of the past and healthcare standards and technology improving exponentially, the model my mum is following is likely to become the norm, less out of envy and more out of necessity.
The generation in line to fully experience this shift is the under 35s, due to particularly significant changes in this cohort’s demographics and attitudes to work-life balance, as well as costs like housing delaying high levels of retirement savings.
Later on the ladder
A key element in understanding how and why retirement will look very different for young people today is that we’re doing just about everything later than our parents.
In 1997, the youngest age at which more than 50% of people were homeowners was 26, rising to 34 in 2017, according to recent figures from the Office for National Statistics (ONS). As a result, 55% of 25-34 year olds were renting in 2018, compared to 35% in 1998. And it’s not just house prices putting off increased pension contributions.
The average cost of a UK wedding topped £27,000 in 2017, with parents no longer the sole financial contributors - 32% of those surveyed funded their big day through their own savings. The expense, along with changing attitudes to marriage itself, have meant the UK’s 20-somethings are more likely to have children than be married, with the average age of first-time marriage increasing in 2015 to 33 for men and 31 for women, up from 30 and 27 respectively in 1997.
The order and timing of life’s big expenses shouldn’t be underestimated. With no guaranteed income lined up for retirement, more than ever we need to get the snowball effect of compounding started as soon as possible to give us a chance of funding the lifestyle we want later in life. The longer the first part takes, the shorter the savings have time to grow interest on interest.
To cap it all off, we’re likely to live much longer lives than our parents - but healthier lives at that.
Investment Pulse email
Sign-up to receive daily investment news and insights
Thank you. We've emailed you to confirm your subscription.
We can afford to be pragmatic about having a side-hustle to transition into fulltime retirement - if you haven’t considered it it’s worth thinking about. It could mean setting yourself up to consult for a business once a week, or taking on the projects that will allow you to leave your investments ticking over in the background without dipping into them too much. The point is that a cut-off point with a gold watch and a cruise has most likely disappeared.
Talking about a third age might have once been a softer way to mention retirement but it’s now a genuine phenomenon in its own right. I talked to a couple recently who are combining their pension savings and investments with part-time work to achieve an active and varied lifestyle, and their example is starting to resonate with others in the same boat.
The old model of study, work, retire no longer applies for the under 35s but kick starting our investments now will be the difference between reducing work to an enjoyable hobby later in life and sticking with the day job well into our golden years.
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.