Which is the best way to save for retirement?
The pension insurance option will cost you more and more in the years to come, but it is the one that will have the biggest impact on your finances, according to a new report.
The report by the pension consultancy the Pensions and Investments Institute (PIV) suggests that, by 2059, it may be worth retiring with a higher level of pension savings than your current level of income.
This means that the average worker could save for an extra $1,400 in the long run, it suggests.
If that seems too good to be true, that is because it is.
In addition to the higher annual savings, there are also more savings opportunities for those with a lower level of savings.
The PIV has analysed the retirement accounts of 1,000 pensioners from around the world, using their age, sex and level of investment to determine how much they could save over the next 40 years.
This study, the first of its kind, shows how different levels of retirement savings affect their overall financial outlook.
In 2020, the average participant will be working at the equivalent of $55,500 (€45,000), meaning their retirement will be £11,300 (€12,700) lower than the average UK salary.
This will be followed by an increase in saving at the next level of retirement to £20,600 (€24,700).
The average participant also has a lower rate of inflation than the rest of the population.
This means their retirement savings will increase by £4,100 (€5,800) over the 40-year period, compared to the average rate of 2.9%.
The average worker is also likely to be saving less than their peers.
The average person will save at a rate of 0.9% (3.4% for those aged 25-44), compared to 2.4%.
However, this difference disappears when looking at those earning more than £100,000 (€180,000) a year.
The average person saves an average of 1.7% (4.4%) over the course of their 40-years’ retirement, compared with 2.5% for people earning between £100-120,000.
There are also differences in the types of savings available to pensioners.
People with a more passive pension can use it for more than they would normally, such as investments in real estate or cars.
However, the PIV study says this is more of a choice than a requirement.
The study also found that those with higher investment returns will need to take on more risks to reach their savings goals.
For instance, the median person will need an additional $9,400 (€13,000, or £17,000 in 2020) in savings to reach a maximum of their target savings.
The figure is much higher for people in higher income brackets, which means a more conservative approach to saving may be more appropriate.
The research was carried out by the Piv’s research team and was based on the responses of a representative sample of 1 and 2,000 respondents.
The results show that the pension age at which a participant begins to work can also affect their chances of reaching their retirement goals.
People who are 25-34 will be more likely to retire with a much lower level, and 35-44 will need a higher pension.
For older people, the pension can be an attractive option, because it gives them the ability to defer the payments that their employer pays on their pension contributions.
However it is a higher retirement age than other options, such to pension savings in other countries, which have been linked to lower rates of inflation and lower rates in terms of unemployment.
The findings of the Pives study were published in the September edition of the Journal of Retirement Studies.