How much do I need to retire?

We get asked many questions, but the most common topic we get by far is about retirement – when can I, how much do I need, how much income will I receive…? The list goes on. In this article we look at all these questions and the key one being “How much do I need to retire?”

What’s the best age to retire?

To retire at 55 or 60 is a goal that a lot of people share. It allows you to do the things you always wanted to do. Retiring at 55 or 60 allows you to enjoy life, whilst you still have your health and fitness.

How much do I need in my pension pot to retire?

When people think about early retirement, they automatically think about pensions. Which begs the question What is a good pension pot to retire?

However, the size of your pension pot isn’t the only thing that needs to be taken into consideration. We would also need to take into account your savings and investments too. We would also need to consider any other income too – such as income form property rentals or State pensions.

How much money do I need to retire?

How much you need to retire will depend on how much you plan to spend in retirement.

As a general rule of thumb, you need 20 to 25 times your retirement expenses. So, if you spend £40,000 per year, you’ll need £800,000 – £1,000,000 in pensions, investments and savings.

However, it’s not that simple. You will also need to deduct any income you receive. So, if you receive a State Pension of £8,000 and a final salary pension of £4,000, the actual amount you need is only £28,000.

How much income do I need to retire?

How much you spend in retirement will determine how much income you need to retire.

If you’re thinking about retiring, this is a great place to start.

The easiest way to work this out is to look at what your expenses are today.

Once you know what you currently spend, the next thing to ask yourself is do you expect this to change once you retire? Will you be spending more on items such as travel, hobbies, large-ticket item purchases? Will your expenses decrease because you no longer need to commute to work, or need to purchase business clothes?

If you are unsure, then the simplest thing to do is use the ‘70% rule’ which, states that the average retiree requires 70% of their normal working income.

We suggest you write down two columns Income / Expenditure and document any income or expenses you foresee.

You may also need to consider life events – things like bereavement, care home costs, or paying deposits on houses for grandchildren.

Where will your retirement income come from?

Now that you know what you will spend in retirement, the next question is where will the money come from?

Your income in retirement will come from two places, income and capital:

Income

Income is usually money paid into your bank every month.

It will include items such as savings interest, dividends, State Pension, rental income and any final salary pensions.

If you’re not sure how much State Pension you will receive, you can get an estimate of your State Pension online.

Things to consider – your State Pension may not be paid until 66 or 67. And, any final salary pensions may not be payable until 65.

Capital

Capital is money that you have saved up. It will include things like savings, investments and pensions.

You can withdraw some of your capital each month or year to top up your retirement income. However, you need to be aware. If you withdraw too much, you can risk running out of money.

Now that you know what you have available, you need to create a plan for your retirement.

What if I already have enough to retire?

You’ve worked hard, saved sensibly and spent wisely. You’ve now got enough income and capital to retire.

Why not retire now and make the most of your life?.

What if I don’t have enough to retire?

Don’t worry – there are options available, such as:

  • Spending a little less each year
  • Saving a bit more each year
  • Retiring a few years later
  • Taking your final salary pensions early
  • Assessing your investments

How do I retire without running out of money?

If you want to retire with the security of never running out of money, you need to purchase an annuity. It’s the only way you can be certain that the income will continue forever.

But the problem is, pension annuities provide very little income. You will need a big pension pot to do this.

Alternatively, you can use a drawdown pension. This allows you to take as much or as little money as you want, when you want. But it’s not without risk, if you withdraw too much you will deplete your pension.

This is where working with independent financial planners can help. Regular reviews can help make sure you don’t run out of money.

How we can help you retire

As independent financial planners, we’ve helped many people to successfully retire. We are experts in retirement planning.

By working together, we can show you whether you are on track to retire whatever age you decide. If you’re not, then we can advise you on the best options available to achieve your retirement goals.

Your free retirement assessment

By booking a free 45 min retirement assessment with us we can advise you of:

  • how much you need to save for your retirement
  • when you can afford to stop working or phase out working
  • how much you can spend in retirement

Let’s get started. We can help you achieve your retirement dreams and goals.

Book your free retirement assessment

 

Other articles:

What to do in retirement – great ways to spend your time

A guide to retirement planning

Guide to designing your own lifestyle plan

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