Investors save 11% of their salary for retirement - is it enough?

Non-retired investors are saving an average 11.4% of their salary specifically for retirement, a major new study has found.

However, the research, which covered 30 countries, also found two-thirds (66%) of retired investors wished they had put away more.

The Schroders Global Investor Study (GIS) 2017, which surveyed more than 22,000 people who invest, found the proportions of income saved for retirement were highest on average in Asia, at 13%, and lowest in Europe, at 9.9%. In the Americas, the average investor saved 12.5% of their income for retirement.

• Click here for a summary of the findings on retirement

Lesley-Ann Morgan, Head of Retirement at Schroders, said:

“It’s well known that people aren’t saving enough for retirement but this study shows that even those who are already established investors are not putting away enough money.

“There’s also a strong message from those who have already saved: ‘I wish I had saved more’.

“The pension savings gap is further compounded by the fact we’re in an age of low rates and low returns. To reach their goals, people will need to save even more than savers did in previous generations.

“The study shows investors globally are only putting away 11.4% of their income but say they want to retire at age 60. Our analysis shows that someone who started saving for retirement at age 30 is likely to need savings of 15% and above a year if they wanted to retire on 50% of their salary.”

How much do I need to save to retire?

The level of retirement income that savers can expect depends on:

• The amount contributed (and when).
• The returns achieved.
• How the money is invested after retirement.
• The length of time over which money will be withdrawn.

The chart below sets out analysis undertaken by Schroders. It assumes a starting age of 30 with a £35,000 salary that rises in line with inflation. It shows the real annual returns – where inflation is taken account - that would be needed to achieve two levels of income:  50% or 66% of your salary when you retire. These are typical bands that people aim for. It also assumes they will draw on the money for 18 years, on average.

Source: Schroders Retirement. For illustrations only. Starting age 30 years, retiring at 65. Starting salary of £35,000 assumed to grow at the rate of inflation. Replacement rate based on current annuity rates generating an income of 66% and 50% of final salary respectively.

So if a saver contributed 15% of their income, they would require an average annual real return of 4.3% (the middle column) to achieve a retirement income worth 66% of their income. If they contributed 10% of income, however, they would need a return of 6.2%, a level higher than the long-run return on equity markets.

Past performance offers no guarantee of future returns but today’s low-rate world could mean investments pay less than they have done in recent decades.

However, the Schroders Global Investor Study also found respondents remained optimistic on the outlook for returns. Globally, investors anticipated their investments would return 10.2% a year on average, over the next five years.  Schroders economics team’s long run expectation (30 years) for equities is inflation plus 4%.

Returns are also influenced by how much risk is taken with a portfolio, which in turn dictates the type of assets that are bought.

However, the study also found that investors are currently averse to taking too much risk due to the uncertainty caused by international events:

• 59% do not want to take on as much risk in their investments now.
• 48% have put more money in cash than they had before.

Schroders’ Lesley-Ann Morgan said: “People in some countries tend to invest more cautiously and may therefore see lower returns. In Germany, for instance, pension savers have a preference for bonds, which typically have delivered lower returns.

"Such savers will need to contribute even more to ensure they realise their retirement goals.

“The most powerful tool available to savers is time. Start saving at an early age and it makes an incredible difference to the eventual size of your retirement account. The miracle of compounding, where you earn returns on your returns, adds up over 30 or 40 years of saving.”

Do investors know they need to save more?

Globally, 66% of retired investors said they wished they had invested more for their retirement. But non-retired investors did acknowledge the need to do more. They thought they should be saving an average of 13.7% of their income in order to live comfortably in retirement, higher than the 11.4% average they say they are currently investing.

The biggest difference between what people were saving and what they thought they should be saving was in Chile, at 10.7% versus 19.0%.

The smallest difference was in Denmark where investors thought they should be saving 12.0% and were actually saving 11.6%.

Indonesians save the most

On average, Asian investors were investing the highest proportion of salary for retirement. Investors in Indonesia and Singapore were saving 15.4% and 14.6% of their incomes, respectively. South Koreans were saving the least, in Asia, putting aside 10.2%.

As a percentage of their income, Europeans were investing the least for retirement. Russian and Spanish investors said they were saving 8.6%, on average. At the other end of the scale, Danish and Swedish investors were investing the most at 11.6% and 11.5%, respectively.

Within the Americas, US investors were saving more of their salaries for retirement than Canadians, 13.5% vs 11.2%.

Are you saving enough for retirement?

When will I retire?

Globally, non-retired investors, said they expect to fully retire at an average age of 63.0 but would like to retire almost a full three years earlier at the age of 60.2. However, retired investors said they had expected to fully retire at the age of 61.1 but actually retired at 59.4.

Non-retired Europeans are less optimistic on retiring earlier. On average, they expect to fully retire aged 64.5years old compared with age 61.0 for Asians. Italians are most pessimistic about an early retirement. They expect to retire at 67.5 years of age. Thai investors are most optimistic and expect to at 58.0.

The state pension age within countries can affect thinking about when the right age is to retire.

Are we still too reliant on the state pension?

Investors are still relying on the state to provide a significant proportion of their retirement income. Globally, on average, investors expect the state to contribute (or for retired investors it actually does contribute) nearly a fifth (18.5%) of their income in retirement. That figure was highest in Europe (25.6%) and lowest in Asia (12.8%).

More results on retirement expectations are published in the full report. The links below take you to other elements of the Schroders Global Investor Study 2017.

• Investors expect returns of 10.2% with millennials hoping for more
• US outranks Europe in Schroders sustainability league table
• Profit vs impact: investors choose sustainability for better returns
• How people are prioritising investing over property and savings

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Important information: Schroders commissioned Research Plus Ltd to conduct, between 1 and 30 June 2017, an independent online study of 22,100 people in 30 countries around the world, including Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, UAE, the UK and the US. This research defines “people” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.