This may well be a question you’ve found yourself asking quite recently, having returned to work after a relaxing, festive break! But being able to retire may seem like a very distant dream. And when you actually come to think about it, you may realise you have absolutely no idea how much money you would need to be able to stop work and live comfortably. After all, there is little point retiring if it will just mean you have more time but not enough money to enjoy it.
Most people these days expect to have to carry on working until at least 65 and this age will rise. Between October 2018 and October 2020, both men and women’s state pension age will increase to 66. And between 2026 and 2028, it will rise again to 67. The rises are partly linked to longer life expectancy. According to the Office of National Statistics, a newborn baby boy is expected to live to 79.1 years and a newborn baby girl to 82.8 years, given current mortality rates.
Of course, some people are able to take early retirement if they have a good private pension plan, have come into a windfall or saved extra diligently. However, it does seem that those who can afford to do this are becoming something of an endangered species! Whereas in the past, pensions were in a better state, personal debt wasn’t so high and people weren’t living so long. What is even more of an issue is that people often have no real idea how much would be enough to escape the rat race and retire on for good.
Would £350,000 be sufficient for instance? £450,000? £550,000?
In their 2016 pensions report, Scottish Widows found that while 56% of people are saving adequately for their retirement, 23% admitted to having no idea whether they were saving enough for retirement or not.
Obviously, to some extent it depends on the type of lifestyle you intend to lead. But there are some basic calculations you can do to give you an idea. We call it ‘knowing your number’. Imagine how empowering that can be. We help people establish the age that they would like to retire. Then, working back, we calculate what they’ll need to save to retire at this age, how much income this will give them in retirement and whether that figure matches the amount they’ll need to fulfil their goals.
You will need to consider whether you intend to run down your lump sum or derive some income from it and if so, what sort of return you would need to give you an annual income to last you until, say, the grand old age of 90? Also, think about what you will need to live on. Although you will no longer have any commuting costs, you will still presumably want to take holidays, no doubt even more frequently and then there’s your regular household bills for food, extra heating and council tax.
At Creative Wealth, we specialise in helping individuals fully understand their pension. Such knowledge puts them in a position of power so they are able to decide whether they can indeed afford to live it up or need to carry on working a bit longer. If you’d like to find out more please contact your normal Creative consultant, or get in touch with us on info@creativewm.co.uk.
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