The top 3 things which currently employed people would most like to do when they retire are travelling, hobbies and giving money to their children and grandchildren according to a new report on retirement. Unfortunately, the report goes deeper into how people can achieve this and finds a large gap between people's hopes for the future and the reality that they are facing.
A third of people surveyed think they will have enough money to 'get by' in their retirement and nearly a quarter think their life is likely to be a financial struggle "for the foreseeable future". This news doesn't get any better either with only 17% believing that they will have enough to really enjoy themselves.
Source: Aviva, 2018
Despite people's aspirations for their retirements, less than a third of people surveyed said saving for retirement is among their top financial priorities. This drops to around 19% of those currently aged 22 to 30, but comes into much sharper focus for 56 to 65 year olds with over 54% stating it is now a top priority but wasn't previously.
However, there is room for some positivism in the report due to the success of auto-enrolment which was introduced in the UK in 2012. The project, which was aimed at plugging the gap in retirement funds, has 10 million more people than previous to 2012 contributing to their pensions. In April 2019, minimum contributions to those pensions will rise to 8% of earnings, including top ups from employers and the government.
Aviva though, do not believe that this is likely to leave people with the pension fund that they will need for to live the comfortable retirement that they are looking for. To close this gap they are calling on the British government to increase minimum auto-enrolment to 12.5% by 2028.
The problem the U.S are facing is being labelled as "leakage" which is where their 401k plans (pensions) are without repaying the money or paying it back so slowly that it disrupts growth of their pensions. Around 40% of people in the U.S are currently borrowing from their workplace plans. Most are repaying their loans within five years with interest - which is the typical requirement by employers. But academic studies have found 10% default; often when laid off, which recalls the loan immediately. And this has a knock-on effect as if you can't repay the balance in cash then it will count as a withdrawal and thus be subject to taxes and penalties.
An additional problem is that two-thirds of people cope with that payback issue by pulling out the entire balance from their 401(k)s, according to Deloitte.
The result for a typical 42-year-old borrower, taking out a $7,000 loan from a $70,000 account: $300,000 less at retirement age than they would have had if they had never touched the money and investments gained 6 percent a year.