‘Golden years’ are set to become ‘gloomy years’ as peoples expectations of savings needed and actual income in retirement are discovered to be fully out of touch.

British people expect their annual retirement income will be £18,053 per year, which is 40% higher than reality, according to new research from savings giant Prudential.

Furthermore they expect that savings of around £115,000 will provide them with this income, the reality being they will need 60% more than that figure.

The huge gap between people’s expectations and reality is at the root of problems such as growing grey crime and the need for pensioners to drastically cut spending as highlighted in last month’s Prudential Retirement Index.

Savings of £115,000 will buy a maximum annual income of £8,7812 in retirement. Combined with the state pension of £4,1393 the average individual income would only be £12,920 per annum – £5,133 short of the £18,053 people expect.

A stunning 50% of people had no idea of the amount they need to save to provide them with the income they want when they retire. Those that did respond were on average nearly £70,000 short of the over £180,000 needed to generate their desired income.

The pre-retirement age group (55 – 64) appears to be in for the biggest shock, with an average savings-required estimate of only £105,412. This level of savings would deliver an annual income in the region of £8,000, whereas the expectation for this group is more than double that at £17,414.

The gulf between what people think they need to save and reality is evident across all age groups.

Those people with pensions may consider top-ups as one way to avoid the increasingly harsh realities of retirement. The following table4 illustrates the monthly contributions required to bridge the £5,133 gap between expectation and reality.

Angus Maciver, Director of Customer Research, Prudential UK said: “The so called golden years are fast becoming a quaint notion – out dated and for most of us unobtainable. Alongside the old enemy of procrastination it is now obvious that in this country we are simply out of touch with what is needed to aim for a comfortable retirement.”

“People reaching retirement age can now expect to live another 20 years, something that in itself is widely underestimated. Unless people start to plan and save more the increasing poverty we see affecting today’s pensioners will become endemic.”

“The earlier people start planning and saving the better. The longer people wait the greater the gap will be between what they expect and what they get.”

People can take action by seeking independent financial advice or by looking at other sources of information such as The Plan from the Pru. Details can be found on www.pru.co.uk/plan