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UK Financial Adviser

What’s your magic number?
How much do you need to retire?

Retirement and pensions

Retirement is something we will all (hopefully) face, some sooner than others, but it is important to start contributing towards your retirement as soon as you can and workplace pensions are the place to start. Workplace pensions are set up by employers to let you save money for retirement, money is taken directly from your wages and in most cases your employer contributes towards the pension too.  Depending how often you change jobs over your working life, you can end up with various different workplace pensions.

As well as workplace pensions, you can have your own personal pension which you can contribute however much you like, whenever you like. If you can afford to do so, contributing regularly to a personal pension can help increase the amount you have during retirement substantially. With a personal pension, you can usually choose where your money is invested based off your own attitude to risk. It is important to realise that unless your pension funds are sat in cash, the value of your pension will fluctuate with market movements. When you are younger, you may be more accepting of risk and potential fluctuations to the value of your pension. As you get older, your attitude is likely to change because you will be accessing the funds sooner, therefore may want to try to keep as much value as possible, which can be done by either reducing the level of risk surrounding your fund choice, or by selling down the investments into cash.

How much do I need for retirement?

Whilst there is no set amount that you should aim to have for retirement, realistically the more the better. Everyone’s lifestyle is different, whether you live a lavish or simplistic lifestyle you will, at some point, retire. There are some important things to consider when planning expenditure in retirement:

  • Monthly expenditure should change; most people’s mortgages and debts are paid off by the time they retire.
  • You will have more free time than you have had throughout your working life
  • You may find new hobbies, they may be costly
  • You might take the opportunity to travel to places you haven’t been to before
  • You might have a bucket list

You should bear this in mind when thinking into the future and planning for retirement, as retirement may give you the opportunity to do everything you have always wanted to do, therefore it is important to start saving for it as soon as you can. Some say that if you start saving for retirement in your 20’s, you should aim to save 10% of your income. You can save more or less, but ultimately, the sooner you start saving, the more you should have to enjoy retirement.

Averages

If you think that the current retirement age is 66 in the UK, and life expectancy is 83 years, that is (on average) 17 years to live off your pension. Of course some people may retire earlier, many people continue to work beyond 66 and you may outlive the expected age of 83, therefore it doesn’t hurt to have more money than you think you need. According to research in 2021, for a single person to live moderately, they need an income of £20,200 per year. To live a comfortable lifestyle in retirement, they need an income of £33,000 per year. Given the 17 years of retirement (on average), this means to live a moderate lifestyle in retirement you would need £343,400, or to live a comfortable lifestyle you would need a pension pot of £561,000. This is a large sum of money, and of course you may not need that much, but in any case why not start sooner rather than later?

Overall, there is no specific value to achieve before retirement, it very much depends on your retirement plans, your lifestyle, your income, where you live amongst other factors. I don’t know about you, but I want to save up as much as I can to make the most out of my retirement.

If you are looking to open up a personal pension where you can invest however much you want, when you want, feel free to get in contact with us at Ascot Wealth Management where we can help you build towards your retirement goals. You have the choice of 5 different risk categories based on how comfortable you are with volatility, as well as a wider range of investment products depending on what your aim is. Additionally, we can help you consolidate your various pensions into one place, where it is easier to manage and keep on top of. We can be contacted through our website, ascotwm.com or by phone, on 01344 851250.

Written by: Michael Morris

Date: 24 November 2022

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