Savers Are Paying For Not Taking Enough Money Risks

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Savers are sacrificing up to £140,000 of retirement income because they are playing safe with their investments, claim financial experts.

Rather than take a little risk, savers would rather work longer to fund their retirements, according to the report Tackling the Savings Gap from financial firm True Potential.

The study looked at the financial habits of 10,000 savers of all ages to try to determine their attitude to risk and investment.

The majority response was risk shaped how people decided to save, with almost two-thirds of savers identifying that they were defensive or cautious about how they invested their cash.

The survey also revealed savers are putting away an average £238 a month towards their retirement.

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£140,000 retirement shortfall

Based on investing this cash in a balanced portfolio over a 45 year working life, the firm reckoned the fund would grow to around £510,000.

However, investing the same amount of cash more cautiously would result in a fund of £370,000.

As savers said they wanted an average retirement income of £23,000 a year, this would need a fund of about £460,000 to generate the cash.

Only 38% of savers are on course to achieve the average retirement income objective, according to the poll data.

The rest, argues the firm, are likely to fall short of their financial goal simply because they pick the wrong investments to deliver the cash they need to live comfortably in retirement.

Free money course

True Potential’s David Harrison said: “The choice is simple, put the same cash into investments that offer a better return and you will hit your retirement targets.

“Young investors should aim for growth because they have more time to make up for any downturns in markets, while older investors should seek stability rather than risk.

“But savers are all too cautious and as such are sacrificing the money they could earn from their savings and probably sentencing themselves to working longer to make up the cash instead of retiring on a comfortable income.”

Harrison argues that to narrow the savings gap, investors need simpler products and a better understanding of how they work.

“Few adults have any financial education or any reference point to help them make sensible decisions about their money,” said Harrison. “That’s why we designed a personal finance course with the Open University to help.”

FutureLearn is free and has already had 15,000 users.

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