People over the age of 50 have a wildly optimistic view of the annual income their pension pots will buy them in retirement, research by Saga Investment Services has found.
The survey of almost 1,500 people found the over-50s tended to underestimate the amount they would need to achieve their desired annual income by about half.
On average, respondents said they would need an annual income in retirement of £15,200, estimating this could be generated from an average pension pot of £143,830.
But Saga calculated a pot that size would only generate £7,940 a year - around half the desired income.
Broken down by gender, men were more realistic about what their pension pot would get them than women.
Forty-one per cent of men underestimated what they would need to save, compared to 66 per cent of women.
Those aiming at “comfortable” and “luxurious” annual incomes - estimated at £21,630 and £46,640 respectively - were just as unrealistic, again underestimating how much they would need to save by about half.
Nici Audhlam-Gardiner, managing director of Saga Investment Services, said the yawning gulf between expectation and reality was “worrying”.
“Our research found that 80 per cent of people simply couldn’t begin to make an estimate of how much they need to save to get the lifestyle they want, with the result that they are severely low-balling their pension and savings plans.
“It’s vital that people take into consideration all of the financial possibilities, sources of income and investment options to hit their retirement income goals.”
Paul Holiday, a financial adviser and director of GreenSky Wealth, said he was not surprised by the extent to which people underestimate how much they need to save for retirement.
However, he pointed out the research appeared to ignore the state pension.
He said: “For most people, the state pension will be a major part of their retirement income, but they neglect to factor it in.”
He said that couples receiving the full state pension would already be on an income of £15,000 to £16,000 a year before they factored in their private savings.
Nevertheless, Mr Holiday said many clients were “shocked” when informed of the pay-cut they would have take in retirement.
He welcomed the launch of Saga’s planning tool, saying: “The more tools that are available to the general public to help them plan for their retirement, the better.”