Having a comfortable retirement could drain pension pots and leave them empty within just five years, according to new research.
True Potential revealed that people are only putting aside about a quarter of what is required to live happily in retirement.
They suggest this means savers need to plan ahead to either save more, work longer or face a retirement living on what would be close to the minimum wage.
What savings are needed?
According to the study, savers believe they will need £23,457 per year in order to live comfortably in retirement from their savings and pensions income.
This is based on being retired for 20 years, meaning a total fund of £469,149 would be required, and savers could draw down 5% during the two decades.
However, based on current savings levels, Brits will have retirement funds of around £120,000 which would only be capable of supporting the desired lifestyle for five years.
Therefore, an emphasis is placed on saving more for retirement in order to provide the levels of lifestyle that are desired.
A number of reasons are blamed for the savings gap, including low interest rates, the financial crisis and access to high cost credit.
Methods of saving
In order for people to comfortably retire, a need to manage their finances is essential and the study reveals the need for financial education and regulation.
Part of this will require a culture that is supportive of saving, so as much money that is necessary can be placed into pension pots.
Encouraging savers to save into accounts rather than cash is also important as it means inflation is not damaging the potential of those savings.
Saving could be an essential part of ensuring that people are not working into their seventies, as without it people may not hit their retirement goals.
There should be a need to lower aspirations in retirement, which is why saving early could be highly beneficial in the long run.
One option to make financial management a simpler process is to use a prepaid card – only funds on these cards can be spent, so it is possible to limit spending.
This also prevents debts from being developed and it means savers will only spend the money they want to spend.
This means extra funds could be set aside into savings accounts for retirement, providing a basis for the future.
A prepaid card is not directly linked to a bank account, making funds safer; while they can be easily topped up or replaced if required.