How much will you need to retire?

Retirement planning is a key component of working life, with considerations needed to be taken well in advance of your intended retirement age.

Many people overestimate the amount of money they will need to live on in retirement, making the assumption that they will spend the equivalent of their wages.

The general perception of the public is that you’ll need somewhere between half and two-thirds of the final salary you had in your working life (after tax), to maintain a similar lifestyle.

A Which survey looked at the spending habits of 6,000 retirees to find out the amount of money you will need to retire.

Household spending

The research found that the average household spends £2,220 per month in retirement, which equates to £27,000 per year.

These costs included the basic expenditure costs, which worked out at £17,800 on average, with luxuries such as eating out, hobbies and holidays making up the other £9,200 per year.

Savers often find that when their mortgages are paid off and their children have grown up, they spend more on other goods. Holidays were a significant spend, with retired households spending an average of £4,800 per year on travelling.

Pension income

There are many facets to pension income. With the state pension, private or workplace pensions and any other additional income from property or investments, savers can accumulate income from many sources in retirement.

The state pension for a couple who qualified prior to April 2016 totals £13,437 per year, which is just under halfway to the average annual income level for pensioners. The figure is different now, with men receiving £7,895 and women receiving £7,480, totally roughly £15,375 per year.

What should I save?

It can be difficult to know how much to save. For a comfortable post-tax household income of £27,000 per year with a guaranteed income paid via a joint-life annuity, a pension pot of £298,000 would be needed based on current annuity rates which are changeable.

From an income drawdown, you would need to accrue savings of just over £215,000, assuming that your savings grow by three per cent annually.

This means that if a couple begins saving at 40, they would need to contribute c£489 per month to ensure a comfortable retirement, or c£1,142 per month to ensure a luxurious lifestyle, with an annual income of £42,000 per year in retirement.

The figure if a couple begins saving at 30 is c£352 per month, while if a couple begins saving at 20, they will need to save c£271 per month.

Investments 

Investments can carry differing degrees of risk to capital both in the short and long term.  Your capital can go down as well as up in value and you may not get back the original amount invested.

You should not assume that past performance of a particular investment or fund is an indicator of how it will perform in the future.  The degree of risk and volatility will depend on the nature and spread of investments.

A pension is a long term investment.  The fund value may fluctuate and can go down.  Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

This article is for information purposes only. For help and advice on retirement planning, contact our expert team today. We can provide advice on all types of personal pensions and offer long term strategies tailored to not only help you after retirement but also today.

Posted in Blog, Pensions, Retirement planning.