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Cost of retirement underestimated

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A study has revealed that young people under the age of 30 are underestimating how much money they will need to live on when they retire.

Many businesses in the UK do not offer pension plans for employees which leaves people with no other option than to set up their own pension plans which will enable them to live comfortably once they retire.

The study found there is confusion as to how much should be put into pension plans and that there is a lack of understanding of how much cash is needed to live off once people have stopped working.

Coredata Research carried out the study and found that people under the age of 30 estimated they could live comfortably on £1,233 a month once they had retired. This figure amounts to under £15,000 a year. However another study by Joseph Rowntree that was recently published found that £14,400 a year was needed just to cover basic essentials.

Due to the current economic situation in the UK people are becoming more realistic as to what their retirement income would be. In 2010 the expected monthly income stood at £2,300 but this has now dropped to £1,500 due to a tough economic situation.

Craig Phillips at CoreData commented: “The drastic drop in the forecasts of how much money people think they will need suggests that the days of overblown extravagance are over.

“People can be considered to be now more realistic about the lifestyle they will be able to afford in retirement.

“One can argue that the people who are at retirement’s door have a clear idea of how much money they will actually have once they leave the workforce.

“This figure, though higher than younger people’s expectations, is still just £400 a month above the minimum they need to cover basic costs.”

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By Amanda Bainbridge