In your 30s and 40s? Say goodbye to ever retiring

Call me morbid, but I’ve thought about the last part of my life a lot. As a child, I spent a lot of time with my grandparents during their retirement. Watching as they gardened, volunteered, played golf (love that for them but not for me), travelled the world (yes please), and drilled into their grandchildren the importance of saving. Retirement, I thought, looked like so much more fun than being at school: it was one long summer holiday.

Now, at 36 years old, however, I’m realising that my sunset years (should I be lucky enough to live that long) might not look quite as relaxed as my grandparents’ did.

I am theoretically in a good financial position: I am able to work, I earn an above average salary, have not one but two pension savings plans, I own my home and have started overpaying on my mortgage which means I’m on track to pay it off by my mid-50s as long as my circumstances don’t change dramatically.

On paper, everything is more than fine. But that doesn’t mean my retirement is guaranteed to be a halcyon reward for working throughout my life. And it means things are even more precarious for the thousands of young adults who aren’t as secure as I am or whose circumstances change (which I often worry about because mine well could).

So how did we get here?

The material conditions of young adult life today look very different to those of our grandparents’ – Pre-War – and parents’ – Baby Boomer – generations: fewer young adults own their own homes, which will be a problem because currently, older people tend to cash in property to pay for care, and having to factor in mortgage payments or rent when looking at pension pots dwindles them significantly. Wages don’t rise like they used to. And the very bitter cherry on top? Childcare costs have skyrocketed too.

In addition, pension schemes are less generous than they used to be. No longer do people get generous, gold-plated final salary pensions. And although auto-enrolment began in 2012 (meaning all employees are signed up automatically to start paying into a pension) this doesn’t mean the pot they’re sitting on will be worth much – when you factor in that many might still be paying off mortgages and fighting inflationary costs.

When I asked around to see whether millennials were worried about old age, one woman in her 30s, who is employed full-time but didn’t want to disclose exactly how much she was earning, said: “With annuity rates of around 4 per cent, I’m expecting I’ll have around £40,000 a year to live on in 30 years’ time.”

She added bluntly: “That might not be enough.”

(A recent calculation by the Pension and Lifetime Savings Association found a single 65-year-old would need a nest egg of £635,000 or £43,000 a year to maintain a ‘comfortable’ standard of living; this did not include outgoings for housing – only energy, food, clothing and a two-week holiday).

Of course, auto-enrolment doesn’t apply to those who are self-employed: I spoke to two men, one of whom is in his early 30s, and another in his 40s, who summed up the fear that many feel. One said: “Don’t make me think about this please!” Another said: “I think about this every single day.” Neither of these people are currently saving for retirement.

It is easy to criticise people not saving as shortsighted or financially naive. But Molly Broome, an economist at think tank The Resolution Foundation, explains that people are facing a “big tension” around what they choose to do with their money: “Retirement doesn’t seem like a priority when people are facing lots of other pressures. Sadly, this also means that lots of people are under saving, and going to reach retirement with a lower standard of living.”

Rents are currently at historic highs and house prices reached their highest ever level – people are trying to buy a home and not even thinking about retirement.

In its 2024 report, Precautionary Tales, independent think tank Resolution Foundation warned that low saving among British households could present a big social and fiscal problem in years to come. It warned that families in the UK were being confronted with a “triple savings challenge”. This consists of a lack of accessible “rainy day” savings to cushion small cashflow shocks, inadequate precautionary saving to see people through large and unexpected income shocks, and insufficient saving to provide an adequate income in retirement.

These three issues are inherently linked and speak to the financial challenges that young people and those in middle age are having to contend with. “The problem with saving is that young people today face really difficult choices,” Broome explains. “This has been exacerbated by the fact that they’ve experienced 15 years of stagnant income growth which means that they have to choose between consuming goods and services today, saving for precautionary purposes and saving for retirement.”

There’s another wrinkle in the Government’s pension plans, too. Many in their 30s and 40s were already a significant way into their career when auto-enrolment was introduced, having missed vital saving years. Economist and former Treasury advisor Ian Mulheirn warns that this means there are some people now in their late 30s and early 40s who were not automatically saving.

“For this cohort of people – and we don’t know exactly how many there are yet – there will have been 10 years of their career when they weren’t automatically saving via auto-enrolment,” he explains. “They’ve kind of fallen into the gap between the decline of defined benefit schemes and auto-enrolment.”

I remember that period well. I was a freelance broadcast journalist when auto-enrolment came into force and my payslips changed. If I hadn’t been forced to save, there’s no way I would have at that age. Even for those who are auto-enrolled, Broome says the amount put away is too low and the default percentage should be increased from 8 per cent to 12 percent if people are to have a “living pension” which provides a minimum standard of living in retirement.

Fundamentally though the biggest issue is homeownership rates. According to the latest census data, one third of households in Britain own the home they live in outright with no mortgage. Most of them are 60 or older. As things stand, anyone with more than £23,250 in capital must pay full price for adult social care which ranges between £4,640 and £5,640 per month.

It’s common for people to sell their homes to pay for care, but if homeownership rates for millennials and Generation X don’t increase, that won’t be possible. And care costs are “unpredictable” as Mulheirn puts it. So, it’s possible that care could become more expensive.

Not only will these people not have their homes to use as assets, but they’ll still have to be paying out rental or mortgage fees from their meagre savings. Mulheirn says. “This could have significant implications for retirement because if those homeownership rates haven’t risen, it will mean people [are] having to use their pension to pay for living but to pay for housing costs too.”

Mulheirn remains “reasonably sanguine” and thinks “homeownership rates probably will rise because some people will be lucky enough to inherit” – but warns that this issue should be on policymakers’ radars.

Even if you’ve been lucky enough to get on the ladder, as I’ve reported previously, average mortgage lengths are rising and the number of people who will be repaying a mortgage in their 60s and 70s is also set to rise. So, it’s not simply the case that those people who have bought homes will automatically be sorted.

Baroness Altmann is a member of the House of Lords and a leading expert on pensions in the UK. She agrees that for all of the above reasons, retirement may well look very different for millennials and Gen Z. “You’re not going to have a good life in retirement on just a state pension or very little private pension,” she warns.

“There’s a gendered aspect too,” she says, because an increasing number of women are singleas compared to previous generations. “This has an impact on their retirement prospects, and you have to factor in that women tend to have lower lifetime savings due to their caring responsibilities whether that’s at child stage or looking after their partners or parents at a later stage.”

The problem is that not everyone is fairly rewarded for the work they do. Last year Altmann fronted a bill in the House of Lords which extends auto-enrolment contributions so that people who have low incomes or work part-time – often women – will have more money going into a pension pot. However this, she says, is “a minimum – It’s nowhere near enough but it’s better than nothing.”

She would also like to see unpaid care properly recognised – “it’s worth a fortune to the economy,” she says.

And, whether we like it or not, people generally live longer today, and they will work longer too. The state pension age is currently 66 and due to rise to 67 between May 2026 and March 2028. It is expected that it will rise again to 68 in 2044, but the Government’s own reports have warned that there will be pressure to increase it again “before that”.

This isn’t a problem way down the track. Changes to retirement are going to come a lot sooner than we might think, says Altmann. “Gen X is likely to redefine the whole concept of later-life living in terms of work and leisure and how to combine the two,” she said. Members of Generation X are people who were born between 1965 and 1980 – the oldest Gen X-er is currently 59 years old and the youngest is turning 43 in 2024. “The current idea of stopping work altogether at any one age may soon go out of the window”.

“With the end of most guaranteed employer pension income, younger adults will be used to less certainty and a need for more flexible thinking about what they will do and when,” Altmann says. “They might want to embrace a new phase of ‘pre-tirement’ where they gradually cut down work but keep on earning and stay economically engaged in two or three days of work.”

Unless your job is physically difficult to do as you age, this isn’t necessarily a bad thing, according to research. One 2021 study, which looked at data from adults over 64, found that those working full-time or part-time had significantly better mental health (measured by the Geriatric Depression Scale) compared with those who retired. Another, this time from Japan, found that being employed later in life reduced a person’s susceptibility to stroke.

For many people, the silver lining that working into old age might be a bit better for your health will feel like a small reward, when the alarm clock is going off every Monday from now until, well, forever… But right now this glimmer of good news is as close to one as I can find.

Unless you find comforting the fact that the concept of retirement is actually a relatively recent invention, originating in the 1880s and, therefore, not something we should take for granted? I’m not sure I do.