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Cheese and pickle on brown please

cheese-etcHow should advisers use statistics when it comes to helping clients reach a realistic figure for retirement income? There’s little doubt that statistics are a great way of demonstrating to clients the benefits of saving for retirement.

A current favourite of mine is how you could boost your pension pot to the tune of £63,700 by bringing a packed lunch to work every day.

The research, conducted by Opinium Research on behalf of the UK’s National Employment Savings Trust (NEST), is based on a 30 year old spending £15 a week on lunches throughout their working life. There’s no detail on what should be in the packed lunch, but I’d guess you’d need to opt for cheese and pickle sandwiches rather than smoked salmon to maximise savings.

The research pulls out plenty of other stats that catch the eye and possibly more suited to those of us who can’t resist a walk to the local deli at lunch time. For example, how working out at home instead of paying for gym membership can save you £8.90 per week which, put towards a pension, can build up to £36,000. And while these figures are sterling based, it’s pretty easy to extrapolate them to suit any location or currency in the world to encourage international clients to save.

But the use of such eye popping stats can often receive a deflated look when it’s explained to clients that the £100,000 of savings made by eating curled up sandwiches and doing press ups in the garden for 30 plus years will only achieve an annual retirement income roughly in the region of £6,000 and £8,000, depending on the investment strategy used.

Perception disconnect

Of course many clients will have accumulated retirement savings much larger than this and will have a decent cushion of other assets to fall back on, but you get my meaning. There is often a big disconnect with accumulating a lump sum saving and how those savings provide a suitable income in retirement.

A further difficulty is actually agreeing on an income figure. Is £15,000 a year really a comfortable income to retire on as NEST research suggests? Or is it £35,000, which is what those polled in a survey by financial provider, Aegon, expect? Whichever figure you think, the lump sum needed to provide that income will certainly have to be much bigger than £100,000.

The thing is, there is no magic number when it comes to retirement income. What a client can comfortably live on in retirement depends on a wide range of personal factors including when they plan to retire, in which country, family circumstances and likely spending habits. It gets even more complicated when you take into consideration any ongoing financial commitments, tax liabilities or health needs.

I’m not suggesting we don’t use statistics to highlight the benefits of saving, but we do need to do more to help clients understand that the level of income they hope to enjoy in retirement is entirely driven by the size of the lump sum accumulated and how it is invested.

On that note I’ll leave you with one final statistic for those planning to play lots more golf in their golden years. According to research by Friends Life, those retiring in the UK who plan to play golf can expect to pay on average £1,834 per year in 2042, up from £918 in 2014. Chess anyone?

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