As we juggle the commitments of our working lives, many of us don’t get to travel as much as we’d like to. As a result, we look forward to the freedom of retirement as a chance to really explore the world and finally tick off those trips from our bucket lists. However, new research from private pension and stocks and shares ISAs provider, True Potential Investor, suggests this dream is dying out…
The investment specialist conducts a quarterly report, titled Tackling The Savings Gap Consumer Savings & Debt Data, which examines key pension and debt trends. Interestingly, its findings show a significant split between retirement expectations in different age groups. For a number of years, a round-the-world trip has been the retirement dream for many — and it seems that 25-34 year olds are keeping this dream alive.
The Q3 2016 report found that a quarter of 25-34 year olds would pay for a round-the-world trip using their 25% tax-free pension sum. However, just 2% of over 55s said the same. Perhaps this disparity between age groups is a result of a more realistic outlook from over 55s. While 25-34 year olds are hopeful about their pension potential, over 55s are closer to retirement and are therefore more aware of the limitations of their pension pots.
This point is further strengthened by the amount in the average 55 year old’s pension pot — £51,446. Based on this amount, they would have a tax-free lump sum of around £12,900 — an amount that is dwarfed by the actual cost of a round-the-world trip. For example, a mid-range ticket on a 120-day Miami to Miami world cruise costs around £48,000 — nearly the entirety of an average 55 year old’s pension pot.
So how far could they travel using their tax-free amount alone? They could afford a trip to take them halfway across the South Pacific, cutting their 120-day trip to just 35 days. This is based on a single traveller; throw a partner into the mix and the trip would take them from Panama Canal to California.
It’s not just the round-the-world that is suffering because of these pension realisations; it seems over 55s are also changing their views on holidays in general in retirement. Just 10% of over 55s said they were going to take regular holidays once retired, while 34% of 25-34 year olds said the same.
What is causing this change towards holidays in retirement? True Potential Investor attributes it to growing realism amongst pension contributors. The survey suggests that people are only becoming aware of the reality of their pension pots when it’s too late, which should motivate young people to start putting money aside sooner, no matter how small the amount.
The findings do suggest that such a shift is underway. In Q3 2016, just 19% of 24-34 year olds failed to make a contribution to their private pension pots, down from 26% in the previous quarter. With this figure expected to grow, future retirees may not need to give up on their travel dreams.
With a new interactive quiz from True Potential Investor, you can complete some questions about your current and future expenditure, resulting in some insight about how much you’ll financially require for retirement. You’ll find the retirement quiz on their website.