Those of us physically unscathed by COVID should certainly be grateful, but there is no denying that this pandemic has dashed dreams of all kinds. Weddings, holidays, and milestone celebrations have all had to be put on hold, alongside most other sweeteners of life.
Thanks to vaccine developments, we can look forward to these again soon enough. But it seems unavoidable that the pandemic will cast a very long shadow when it comes to people’s financial plans. For many, it may have completely dashed their ultimate dream – that of a long, comfortable and can’t-come-soon-enough retirement.
The pandemic will have thrown many of those approaching or already in retirement off course. An incredibly challenging investment environment has forced the wholesale revision of many an investment strategy, not least because of widespread dividends cuts. Rock-bottom interest rates and the waning charms of buy-to-let compound the conundrum of where to find reliable income streams in later life.
The complexities of decumulation are a topic for another day, however. What is far more alarming are the retirement prospects of those due to stop working in 10-30 years.
I say “due” advisedly, since it seems that retirement dreams are slipping away completely for great swathes of forty- and fifty-somethings. New research suggests that one in three Britons born between 1965 and 1980 will have to rely predominantly on the state pension to survive. Given the ever-rising age to receive this modest amount, you have to wonder if these people will ever be able to stop working completely.
Living your best life?
Finally being able to clock off is one thing; living your best life (or anything even approaching that) is quite another, however. Today, 50% of Gen Xers worry they won’t be able to afford their desired lifestyle in retirement. Sadder still, 48% see themselves being worse off than their own parents. So much for each generation being better off than the last.
Doubtless, these are sobering statistics. I see them as a rallying cry. This chasm between aspiration and reality must be closed, rather than allowed to yawn wider as another nasty side effect of COVID.
It is particularly worrying that 61% of mid-lifers say they would like to save more into their pension, but don’t feel they can currently. Existing financial struggles have been amplified, of course. Yet setting genuine hardship aside, I wonder if some are too readily allowing the pandemic to push pension saving down their priority list. Human beings tend not to be good at fast-forwarding decades ahead, and it may seem that there are always more urgent (and appealing) ways to deploy any spare cash.
Paradoxically though, the fact that retirement seems such a long way off is the very reason why it shouldn’t be de-prioritised.
Could do better?
This is one instance where the passing of the years is your friend – perhaps not in waistline, or hairline, but certainly in bottom-line terms. The reason is compounding, which Einstein rightly called “the eighth wonder of the world”.
By harnessing the almost magical force of compounding to achieve returns upon returns, investors can massively accelerate the growth of their savings pots. The longer the time-frame, the better the results, so it really pays to put aside as much as you can as early as you can. However, it is never too late to make a real difference, you just need the right investment manager fighting to simultaneously maximise returns and minimise costs.
I say this because the dark side of compounding is forgotten all too often. If investment performance is sub-par, those foregone returns will compound over time too – as will the “drag” effect caused by fees that are even a little too high. Seemingly small differences in returns or investment costs can in turn make a huge difference your final financial position. At ARQ, our contention is that most investors could do a little better on both counts – if not very much more so.
To conclude, apathy has a lot to answer for when it comes to the parlous state of Britons’ pension savings, and not just in the sense of too many people not engaging at all. Ask yourself, honestly, if you could be saving a little more, and then if your money is truly working as hard as it might.
If you could do better, take steps now to ensure that you will. You owe it to your (future) self.
This piece is for informational purposes only, and is not intended in any way as financial planning or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.