Did you know that more than half (55%) of UK adults doubt they’ll be able to save enough money to retire when they want, yet only 23% have set financial targets for their retirement? That’s according to the findings of our “What’s your Number” report - a study into how people in the UK are planning their finances for the future.
Why are people financially underprepared for later life? Before we all start beating ourselves up about it, there are some very good reasons why we procrastinate when it comes to financial planning for retirement. Here are some of the key psychological barriers we face, but be warned – once you’ve read them, you will have no more excuses!
1. Tales of the unexpected
Human nature means most of us love an excuse not to do something – especially when we’re not keen to do it in the first place. So, when a stock market crash or a mis-selling scandal hits the headlines, it gives us the justification we need to delay taking any action – even if we don’t realise we’re doing it. Our research found that unexpected events are one of the key reasons people are delaying their retirement planning. Events include anything from illness (22%), an economic crash (18%) and financial fraud (7%). But the reality is that for every person that has had a bad experience, there are hundreds more that have greatly benefited from financial planning and investing for retirement. It’s just that those people don’t make such dramatic newspaper headlines.
2. A lack of pension knowledge and fear of the unknown
Pension rules are notoriously complicated and subject to change. Yet over a third (34%) of UK adults feel they should be able to sort out their retirement planning for themselves. No wonder they are paralysed with fear about doing the wrong thing, resulting in them doing nothing at all. In most other walks of life, if you don’t know something you will ask (and pay for) an expert. Who wouldn’t use a qualified conveyancer when buying a house, for example? Yet, nearly half (48%) of UK adults have never spoken to a financial adviser, mainly because they are deemed to be too expensive and/ or untrustworthy. Taking financial advice can make all the difference to your retirement plans and, contrary to popular opinion; you don’t need to be super wealthy to have an adviser.
3. Embarrassed about the state of your finances
Our research found that 22% of UK adults are too embarrassed about the state of their finances to seek financial advice. That’s a bit like not going to the dentist because you’re embarrassed your teeth are falling out. It doesn’t matter – the sooner you address the problem, the better you will feel.
4. Falling into the importance trap
According to Robert Pirsig, an American writer and philosopher, we are all guilty of putting off doing things that are important because we believe we need time, focus and energy to do it properly. And let’s face it – most of us lack all three of those things when it comes to organising our finances. Financial planning for retirement is a classic example of this. No-one can deny its importance, yet so many of us are falling into the importance trap. Of course, it will take time, energy and focus, but there are financial advisers out there who can help make that process easier for you.
5. We’re victims of the present
Another common trait of procrastination is the ability to justify inaction by believing that immediate tasks must be done first. While we all have long ‘to do’ lists retirement planning needs to become a more urgent priority and a compulsory financial commitment – just like paying off the mortgage. Why? Because for every day that slips, you will need to earn more in the future to make up for it, and you might not be in a position to do that.
6. Financial planning for retirement lacks subjective value
It’s hard to place a value on completing a task when the realised value is so far in the future, and retirement planning is the epitome of that. No wonder that only 12% of under-55s have set a target for their pension pot. In fact two fifths of people have no idea how much they need to save, and of those that do, most wildly overestimate how much it will buy them in retirement. In all, our research found that just 3% of UK adults know their retirement savings target. Without a target, let alone financial advice, there is the potential for significant disappointment in later life. This is the great challenge, not just for us as individuals but more broadly as a nation.
7. Delay discounting
Many people suffer from delay discounting in different aspects of their life, and especially when it comes to retirement planning. Delay discounting means you would rather have, say, £50 today than £100 tomorrow. To help with this, you can break down your retirement goals into smaller, more immediate targets. For example, I want to save £X by the time I’m 30, 40, 50 etc. Again, a good financial adviser will help you do this.
8. Difficulty identifying with your future self
It’s hard to know what life will be like in five years’ time never mind 25 years, so to know how much you need to save for your retirement becomes especially difficult. Our research found that 41% of people admit they don’t know how much they need in their overall pension pot in order to have the lifestyle they want in retirement, and 25% say they don’t know what income they would need each year in retirement. This is where a good financial adviser can help you. They are as much about helping you understand what your future needs will be, as they are about helping you finance them.
The more difficult a task is, the more likely you are to procrastinate. It’s human nature. But if there is one thing we hope you have taken from this article it’s that retirement planning is incredibly important and should not be left to chance. There are good, trustworthy experts out there who can help you, regardless of your age or wealth. Investing your time and money now can, and will, pay dividends in the future.