Pension Advice – How Much Money Do You Need To Retire?
It’s difficult to plan for the future, especially when you don’t have all the information about the present. For many people, their financial situation is vague at best. Proper and safe retirement planning requires a full image of your specific financial situation, taking into account your specific financial needs and long term financial goals.
Giliker Flynn, however, is very experienced at analysing your financial situation, taking into account your savings and pensions, and providing sound and bespoke pension advice. In this, the first of our series of articles about Pension Advice, we’ll be going over some considerations that you should take into account when planning your retirement.
Make it Easy For Yourself: Start Early
The first entry in any book on sound pension advice should be to start your retirement planning early. This is because of two reasons:
- Your pension has longer to grow the earlier you start paying into it
- Assuming you’ll be paying for longer, the less you’ll have to pay in each individual payment
According to PensionBee’s pension calculator, you can expect to have to make payments similar to the following (assuming that your employer has contributed at least £100 per month). Remember, however, these are only estimates. For quality pension and financial advice, you’ll want to speak to a sound financial advice service.
To receive £20,000 per year from your pension (excluding state pension):
- Assuming that you start at 20, you should make a £210 contribution
- Assuming that you start at 30, you should make a £320 contribution
- Assuming that you start at 40, you should make a £520 contribution
- Assuming that you start at 50, you should make a £910 contribution
To receive £20,000 per year from your pension (including state pension):
- Assuming that you start at 20, you should make a £80 contribution
- Assuming that you start at 30, you should make a £140 contribution
- Assuming that you start at 40, you should make a £250 contribution
- Assuming that you start at 50, you should make a £460 contribution
For the purposes of our example, we’ve assumed that you will contribute £100 per month and that you’ll retire at 70. As you can see from these calculations, starting early provides you with a noticeable net benefit in terms of how much money you have to save each month.
Understanding Retirement Costs
Retirement planning, however, is not a simple matter of starting and planning early. It’s also important that you understand your fluid retirement costs — the costs that will rise and fall during your retirement.
As you’d expect, these costs can be separated into two varieties: costs that you can expect to rise and costs that you can expect to fall.
Costs that will rise
- Healthcare Costs*
- Insurance Premiums
- Lifestyle Costs — owing to inflation.
*Assumes that you will choose to use private healthcare during your retirement. If you choose to use public healthcare, you will not need to worry about Healthcare Costs.
Costs that will diminish
- Mortgage Costs
- Pension Contributions
- Commuting Costs
As you can see, the general trend with rising costs is that they are general smaller payments which occur multiple times over a year. This has a cumulative effect on your pension pot
In contrast, diminishing costs are costs which tend to diminish or disappear completely post retirement. Both Pension Contributions and Commuting Costs will get much smaller post retirement, while Mortgage Costs will stop eventually, too.
While Giliker Flynn advises that every person’s financial situation is unique, data gathered in Which?’s 2021 survey suggests noticeable trends in people’s spending whether they’re single or with a partner.
Based on quantitative data, people’s lifestyle requirements can be broken down thusly:
For Retired single people:
- £13,000 a year for an essential lifestyle
- £19,000 a year for a comfortable lifestyle
- £31,000 a year for a luxury lifestyle
For Retired Couples:
- £18,000 a year for an essential lifestyle
- £26,000 a year for a comfortable lifestyle
- £41,000 a year for a luxury lifestyle
A definition of these three kinds of lifestyles can be seen below:
This type of lifestyle covers the basics, such as food, clothes, and housing costs (rent/mortgage).
The next level up includes a few luxuries, such as European holidays, hobbies, and eating out on a fairly regular basis
The final type of lifestyle includes things like long-haul holidays and a new car every five years.
Even a quick, cursory analysis reveals starting results. With a partner, the costs of retirement can be up to 32% lower per person on average.
Padding Your Pension Pot
The final consideration you should have when planning your retirement is whether the size of your pension pot is enough to cover your life expectancy.
According to the most recent government data, the average 65-year old can expect to live for another 20 years, with a total life expectancy of 20 years. However, many people live longer. As a result, it’s necessary to plan your retirement pot with some padding.
Fortunately, a pension isn’t the only source of potential income for you to claim in retirement.
Depending on your financial assets and situation, you may be able to claim income based on one, some, or all of the following:
- Property rental
- Other investments
- Taking on part-time work
You could also raise money by releasing equity from your home. However, if you do want to release equity from your home, we must recommend that you speak to a qualified, experienced and regulated financial advisor before doing so.
A Qualified, Experienced and Regulated Financial Adviser
Based in Newcastle Under Lyme, Giliker Flynn is a company of financial advisors, chartered and regulated by the Financial Conduct Authority. We provide sound and bespoke financial, investment and pension advice in Newcastle Under Lyme and the wider Staffordshire area. At Giliker Flynn, our goals are simple: help our clients achieve their financial goals and give them as bright a financial future as possible.
For more information on how we can do this for you, get in touch with us today.