This is a question I hear a lot “Is my pension enough for me to retire on?”. There are a couple of ways to answer it, depending on when you want to retire and what retirement lifestyle you want.
So let’s start with the numbers and some guideline assumptions.
Moderately Comfortable Retirement
If we look at new data from Hargreaves Lansdown’s “savings and resilience barometer” 6 out of 10 of us are not on track for a “moderately comfortable” retirement. But what does a moderately comfortable lifestyle in retirement look like?
The Retirement Living Standards wants to help savers think in a practical way about the kind of lifestyle they might lead in retirement and provides guideline figures for what a minimum, moderate and comfortable retirement may look like. Their figures suggest, as a minimum, we should be aiming for a retirement income of £21,000 for single retirees and £31,000 for couples. Visit their website for a visual of what that income could afford you.
This moderate benchmark figure would be made up from all your retirement income sources. That could include state pension, part-time work, passive income and private and workplace pensions.
So lets assume you receive the full State Pension at 66/67 which currently would provide the first £9,300. For the full rate you need 35 years of national Insurance contributions and can get your forecast from the government website.
So if you a retiring as a single person your pension (or other income sources) needs to make up the difference of £11,700 and for a couple £12,400 annual income for the rest of your life. Let’s look at what pension savings that might require.
How much can my Pension give me
To generate £12,000 in pension income would require pension savings of around £300,000.assumes 4% income from pension and has not factored in any tax
For this illustration assume that pension savings could provide 4% as potential income. This is not guaranteed, nor advice, but a reasonable guideline figure to play with. Also assume in this illustration that no income tax nor tax free lump sums have been taken or paid.
Aviva offer a free handy pension calculator. Check it out to see how much you could have saved by your chosen retirement date and how much more you’d need to regularly contribute.
Learn to LOVE your Money and Make, Save & Grow MORE
A significant savings number when we compare to our smaller pension savings can feel disheartening. Don’t be. An invested pension is more likely to grow faster nearer the end than the beginning as it benefits from the years of growth on growth. Pensions are a long term investment that need regular action today in order to benefit from later.
10 tips to increase your pension value in the meantime.
- Start pension savings early
- Keep contributing monthly, however small, consistently
- Sign up to your workplace pension
- If self employed set up your own pension
- Increase your contributions regularly for example 1% each pay rise, tax year or when you cancel a subscription or complete a debt or mortgage payments
- Make additional ad hoc contributions up to your annual allowance when able, for example with surplus cash savings, a bonus or family member contribution
- Invest your pension, it will not grow if it remains in cash
- Choose an appropriate risk level for you, this may reduce as you near retirement
- Check the costs and charges are competitive
- Think long term
More pension details and your pension questions answered here
Financial Coaching for your Family
How does your Retirement Look?
But what do you want YOUR retirement to be like?
Gone are the days where we work until our 65th birthday then take our work and state pension as a safe income until we pass away. Many are opting for flexible retirements or using retirement as the opportunity for a new part time business. Some want to be hands on grandparents or travel in the early years and settle later. Our life expectancy is increasing so “retirement” for many could be 40 years of planning.
THIS is where your thinking need to be, what does MY retirement look like, what will I be doing and from what age. What will change from early retirement to later years. Then how much will I need when I start retiring. Will that income need change? Might I inherit and what about the cost of long term care?
For this type of planning the question is not “Is my pension enough for me to retire on” . Instead it is “What retirement do I want and how can my pension and other financial solutions help me to achieve that?”
Think of it more like Rewirement than Retirement. A new book with many chapters rather than the last chapter of the book.
For this you absolutely need a Financial Plan and Cashflow Forecast. I’ll delve deeper into Financial Plans in another blog post, but in essence you need to match your retirement goals with your own financial situation against a number of scenarios for your own visual representation of how that might look.
Need help successfully changing your Money Habits?