New research has found that individuals earning the national average salary of £28,000 will need to reach retirement age with a pension pot of more than £450,000, to have a decent retirement if they are lucky enough to live until 100 years old.
If people expecting to get their telegram from the monarch want to retire at the age of 65 with an annual retirement income of £20,000, £447,000 is the magic amount to have saved, based on the assumption that retirees will invest throughout retirement in a drawdown plan, instead of buying an annuity which would provide income for life.
This private pot would need to generate a starting income of £20,000 a year, which would increase at two per cent to remain inflation-proofed. Pensioners would also need to accrue five per cent investment growth on the savings, which were not taken out as income, in the pot.
However, while income drawdown funds could keep growing, they also involve investment risks, and the pot could run dry, or pensioners could be forced to take out smaller sums.
As one of the study’s authors commented, the extent to which a withdrawal strategy is sustainable or not will depend on a number of factors including overall investment returns, the timing of those returns, and inflation.
Remember that any investment in a drawdown plan comes with its own risks, investments can fluctuate both upwards and downwards meaning you may not get back what you first invested