Retirement reality check: Millions face financial shortfall

Many people approaching retirement may be facing a far less comfortable future than they expect – and they don’t even realise it. New analysis by Barnett Waddingham reveals a striking mismatch between how long people think they’ll live and how long they’re likely to need their retirement income to last. The findings uncover a looming savings gap, particularly for women, that risks derailing the retirement plans of millions.

Life expectancy: more years than expected

Our latest analysis reveals a fundamental flaw in how people plan for retirement: they don’t expect to live as long as they actually will.

Men underestimate their life expectancy by four years, expecting to live to 82 when the reality is closer to 86. Women fare worse, underestimating by seven years – assuming a lifespan of 82, when their life expectancy is 89.
 

The following two charts compare how many survey respondents expect to live to a certain age, compared to the proportions expected based on pension scheme data. At the older ages 14% of male and female respondents expect to live beyond age 90, whereas we expect the actual figures to be around 28% of men and 40% of women. This further emphasises how much people are underestimating how long their expecting to live in retirement.
 

Male

Female

This research builds on our At Retirement Reckoning report and draws on proprietary actuarial models developed using real-world pension scheme data. These models take into account recent factors such as the impact of the Covid-19 pandemic, providing a robust and contemporary view of longevity.

"Millions of savers are heading into retirement with unrealistic expectations and inadequate savings."

Small pots, big gaps

The consequences of underestimating life expectancy are more than theoretical. They can translate into serious financial shortfalls. Consider someone planning to draw a modest £5,000 per year from a private pension between age 65 and 82. They’d budget for 17 years and aim to save around £85,000.

But if they actually live to 86, they would need £105,000. For women who live until 89, that figure jumps to £120,000. That’s a gap of £20,000 for men and £35,000 for women – and those figures assume only modest income needs.

This is particularly alarming when you look at average pension savings:

• Many retirees have only around £50,000 in private pensions.
• For women, this often represents the entirety of their savings.
• If they need £120,000, they’re facing a £70,000 shortfall.

Women hit hardest by the retirement readiness gap

The gender pensions gap is not new, but this new lens on life expectancy casts the issue in even sharper relief. Women tend to save less, earn less and take more career breaks – all while living longer than men.

"Women are facing a perfect storm: longer lives, smaller pension pots, and a far greater risk of running out of money."

Even defined benefit (DB) pension scheme members – often seen as the most secure – are not immune. These schemes tend to cover individuals with above-average life expectancy, yet members still fall short in their longevity expectations. The comfort and security of a DB pension can mask the need for deeper planning, especially when it comes to later-life care and spending.

What can be done – and when?

There are practical steps individuals can take to improve their retirement outlook, but timing is crucial.

• Start early: Increasing contributions as early as possible delivers the greatest benefit.
• Stay informed: Understanding your likely lifespan, not just your hoped-for one, is vital.
• Get advice: A financial adviser can help tailor a strategy that reflects real longevity and phased retirement needs.
• Explore options: For those with both DB and DC pensions, strategic drawdown or annuitisation can provide flexibility and stability.
• Work longer: For some, delaying retirement or returning to work could help bridge the gap.

A retirement reckoning

The UK is entering a critical moment for retirement readiness. Too many people are walking into their later years with false confidence and too little money. By correcting the misconceptions around life expectancy and taking informed action early, individuals can build more resilient plans for the retirement they deserve.