Tax treatment depends on your circumstances and is subject to change
Did you grow up watching Happy Days and the A Team? Have posters of Madonna and Duran Duran on your bedroom wall? Rock shoulder pads and a perm? If you are aged between 45 and 54 you could consider yourself a Gen Xer.
Often described as the ‘forgotten generation’, Generation X are generally described as the demographic cohort following the baby boomers and preceding the Millennials. This typically includes those born between the early-to-mid 1960s to the early 1980s.
The Financial Conduct Authority recently proclaimed that Generation X are often financially stretched1. Many continue to financially support their adult children coining the much-used phrase ‘the bank of mum and dad’. And some are providing vital support for elderly parents. The Financial Conduct Authority report declared that “while they (Gen Xers) tend to have higher than average incomes, many are unable to set aside enough money for their pension…”
While Gen Xers have profited from the rise in the housing market, many missed the final salary pension boat that their Baby Boomer parents benefitted from. And although Gen Xers are now joining auto-enrolment schemes, the biggest impact on retirement savings from these pensions will be most evident for Millennials.
We asked Gen Xers what their biggest financial concerns are ahead of their retirement2. 40% are worried that they won’t have enough money to sustain their current lifestyle and a third don’t think they will be able to do the things they have dreamt of once the 9-5 is behind them. While one in five had hoped to help their family financially, they aren’t now confident that they can.
YouGov reports that these concerns are causing a quarter of Gen Xers to feel anxious about their finances in retirement while half feel uncertain about what their financial future might hold3. The report concludes that to make up for any financial shortfall half of Gen Xers hope reducing their living costs will plug the gap and nearly a third think receiving the State Pension will help.
Are money worries stopping people having a positive picture of what the future might look like? Not at all. Asked what their aspirations are for the next 10-15 years are2, Gen Xers responded that they plan to:
While taking a realistic look at your finances can feel daunting, creating a retirement plan and getting everything in order now will help to reduce any money worries for the future.
If you are worried money could be tight in retirement, now is the time to explore your current spending habits. Using a money management tool like a budgeting app will give you complete visibility of your spending as it divides your money into separate pots. Plus, stick to a budget now and you could have a little bit extra each month to add into your pension.
If you’ve had more than one job over the years you could have more than one workplace pension. Old and forgotten pensions will provide an additional source of income to your current savings. Even a small pension pot could help cover your essential bills in retirement. So, it’s important that you try and find them. If you can’t remember the pension provider, your old employer or the government’s Pension Tracing Service could help. You should also request a State Pension forecast on the Gov.uk website to find out how much you are projected to receive. This top up to your income in retirement from the government should be factored into your monthly spending plan. You may also have other forms of income such as money from a rental property, or you might choose to use equity release to raise capital to fund your retirement. Whichever forms of income you plan on using, you should always consider the tax implications.
One in five2 Brits say supporting family members is a barrier to saving for their own future. There’s nothing wrong with sometimes saying no to others if it means you can put more aside for your future. After all, it’s important you get to do more of the things you want to do as you get older – guilt free! Have any conversations about money early on with your family to avoid any awkwardness or disappointment further down the line.
Think about what you want to do when you are retired and you can start to build a picture of how much you’re going to need to do it. While it’s difficult to know exactly how much to save into your pension, ideally it will be as much as you can comfortably afford to. It’s equally hard to predict the final figure of your pension pot at your chosen retirement age. So, it’s essential to take the time to read the annual reviews sent from your pension provider so you know how your fund is performing. And to keep topping up your pension whenever you can.
It’s important to understand the different options for taking income from your pension. And there’s plenty of them. From withdrawing your pension at 55 to taking 25% of your pot tax free, it’s vital that you keep in mind that taking money early will leave you worse off in retirement. A regulated adviser can let you know your options, look at how your current pension is performing, and see if there is a better product out there for you.
1 Financial Conduct Authority Intergenerational Differences, May 2019
2 Survey by Onepoll for Pension Access, May 2018. Stats quoted 45-54-year olds
3 YouGov Internal Pensions, July 2018. Stats quoted 45-54-year olds
We can help you to make the best possible decisions when it comes to your pension.
Taking pension money early is not right for everyone as it will leave you worse off in retirement. Also, tax treatment depends on your circumstances and is subject to change. That’s why it makes sense to get help from a regulated specialist.
