How much do i need to retire?

Transcription

1 How much do i need to retire?

2 How much do i need to retire? Although retirement planning can seem like a mine eld, working out how much money you ll need to retire comfortably is actually easier than you d think. The question we re often asked is When can I a ord to retire?. It's hard to know how much money you'll need in your pension pot, so you may not know when you have enough and when it's ok to retire. We've seen people who continue working, that could have a orded to retire much earlier than they had anticipated. Retirement planning should be fun and enjoyable, but with so much uncertainty, it can be di cult. We like to keep things simple so we ve broken it down into 3 sections for you: Part 1) How much do you need The rst thing you ll need to work out is how much money you ll need every year to live the kind of retirement you want. Part 2) How much do you have This is where we explore your nances, what are your existing pensions worth, will you carry on earning, what assets do you have etc. 3) Put a plan in place Once you know what you want (part 1) and what you have (part 2), it s time to put a plan in place for your retirement.

3 Part 1 - How much do I need How much do I need Planning out a budget for the next 25+ years of your life is a daunting task for anyone to attempt. There s the uncertainty of how much you might need and also for how long? Our retirement planning service includes a full fact- nding and goal setting session to work out exactly how much you ll need to retire but if you just want a general guide there are a couple of simple calculations you can use The two thirds rule There s a general rule of thumb that states you ll need anywhere between half and two thirds of your pre-retirement income to sustain the same standard of living in retirement. Today s annual household income x 0.66 = likely retirement income Of course, exactly how much you ll need depends on whether you have paid o your mortgage and any debt etc. We like to err on the side of caution, and also allow for life s little luxuries like eating out and holidays, so we tend to go for the higher amount of two-thirds.

4 Part 1 - How much do I need The Which approach Which? Published an example that estimates retirement costs by the kind of lifestyle you want to live. This is a great way to approach your retirement planning as most people have an idea for the kind of lifestyle they want in retirement. The Which? Calculation looks at 3 tiers of lifestyle, we ve named them Frugal, Comfortable and Luxury, which include for different levels of spending on Essentials Treats and Extras and Luxuries N.B. These calculations are based on spending amounts per couple. If you re a single person then you ll want to adjust for between 65-75% of the suggested amount, taking into account you won t be sharing your living costs and may be paying single person supplements.

5 Part 1 - How much do I need Frugal To cover basic expenses like food and drink (no alcohol), utilities, housing payments, insurance, household goods, clothing and shoes and health products, Which? estimate that you ll need a minimum of 18,000 per year per couple. Bear in mind that this frugal existence really does only cover the basic essentials and doesn t include for things like christmas presents, holidays or entertainment. Comfortable A comfortable retirement should allow for you to enjoy a similar standard of living to your pre-retirement days. Planning for treats and extras allows for fun things like travel and holidays, recreation and leisure, alcohol and charity donations on top of your basic expenses. This kind of retirement would cost you on average 26,000 per year Luxury You ll need about 39,000 a year if you have grand plans for your retirement. Added luxuries including frequent and extended holidays, health club memberships, meals out and regular new car purchases on average add an extra 13,000 on top of comfortable retirement spending.

6 Part 2 - How much do I have? What will I need to reach my target? You can nd out whether you are on track to meet your retirement target by asking your pension providers to send you a forecast of what your pension will be worth. Don t forget to add in any income that you will receive in state pension. Visit the government website to check your state pension forecast. There are a number of ways to reach your target State Pension Personal or Employee Pension Money from Downsizing Investments & savings With the new pension freedoms, most people with an employee pension (de ned contribution plan) will opt for a exi-access (income-drawdown) or a guaranteed lifelong regular income (annuity) or a combination of both when it comes to taking money out of their pension. Even if you are receiving the state pension, if you re aiming for a comfortable, post-tax income of 26,000 a year via an annuity (lifelong guaranteed income)- you ll need a pension pot of nearly 210,000 to provide the extra income you need as a couple, assuming that you are both going to receive state pensions. To reach post-tax income of 39,000, again per couple including the state pension, you ll need an initial pension pot of around 550,000.

7 Part 2 - How much do I have? If this seems daunting, remember, this is to provide an income for a couple. If you are both working then you ll have two sources of income and therefore twice the savings ammunition. Plus, you may be able to top up your pension pot with money from savings and other assets such as downsizing your home and there can be other ways to make it work. Your dream retirement might not appear as unrealistic as you think. How much should I be saving? Which? Money calculations suggest that you'll need a pension pot of 210,000 to earn the 26,000 a year you'll need for a comfortable retirement and 550,00 to earn the 39,000 year for a luxurious lifestyle. A 30-year-old saver looking to generate a pension income of 26,000 a year would need to start saving 198 a month. At 40, if you've not started saving yet, you'll need to put 338 away a month and if you're 50 it goes up to 633. However, if you already have pension savings, you may only need to top them up, which means you won't need to save quite so much to bridge the gap.

8 Part 2 - How much do I have? Which? assume you get 20% tax relief on your pension contributions, and the gures combine the income you take from your private pension savings along with your state pension. The sum saved is assumed to grow by 3% a year after charges. Figures shown are in today's money; to save the future equivalent, your contributions need to keep pace with in ation and your pension savings will need to grow by more than in ation (after charges) as well. Published April If you want a more luxurious retirement lifestyle then you'll need to be saving much more to reach your retirement goals as the second chart shows. That might seem like a lot but don t forget that tax relief will provide some of the contribution (20% for lower rate taxpayers, 40% for higher rate taxpayers and 45% for top band taxpayers) and also if you re paying into a workplace pension, your employer will also be contributing to your pension pot every month too.

9 Part 3 - Put a plan in place It's time for a plan Our clients tell us the thing that makes them happiest and sleep easy at night is having a plan that takes away the stress of uncertainty in retirement. Having a robust retirement plan in place will help you manage your money through your retirement and keep you on track with your retirement goals. What does it include Assessing your pension/s - making sure you have the right one for you Looking at all of your assets and investments Creating Income and spending projections Setting retirement goals Tax-efficient planning for your money Investing to maximise your pension Annual reviews to keep you on track with your goals Once you ve got your Retirement Plan in place, you can put your feet up and rest easy! Take the rst step to your creating your retirement plan. Request a callback from one of our Quali ed Pension Specialists and see how we can help you reach your retirement goals. 2020Financial.co.uk

10 Part 3 - Put a plan in place What if I can t afford to retire? Firstly don t panic! If you don t think that you can achieve your desired standard of living in retirement there are a number of things you can do 1. Make a savings plan Create a savings plan to help you plug the gap in your retirement pot before you retire. 2. Defer Retirement You could choose to continue working past retirement age and defer retirement for a few years. This will give you more time to work towards your savings plan. You may even be able to negotiate reduced or more exible hours from your current employer. 3. Supplement your Retirement Have you considered working part time to supplement your retirement income? If you don t want to continue working in your current job, you could always nd one that ties to your interest and passions or o ers you discounts on the things you want to buy. 4. Take Advice Before you consider taking any drastic action seek independent professional advice. There may be another way to reach your goal that you have not yet considered. If you re a homeowner BE EXTREMELY CAUTIOUS about any kind of equity release schemes - there have been widely publicised cases of unscrupulous companies targeting would-be retirees looking to increase their retirement fund. We re always happy to help, so why not give us a call to discuss your situation. 2020Financial.co.uk

11 Part 3 - Put a plan in place Start your plan today Our authorised Pension Specialists are waiting to help you live the retirement of your dreams. Book a Pension appraisal or retirement planning meeting today and we'll give you a call to discuss your needs. Learn more 2020Financial.co.uk