If you have been thinking about your retirement, whether it is later on down the line, or it is coming up faster than you think, you hopefully know what you will be doing in your retirement, and you are aware of how much of your annual income you’ll need to set aside for you to retire on.
However, if you are still not sure about how you are going to build up your pension pot, or what you, as an individual, will need for your annual retirement income, then today we will be discussing that topic as well as how you can figure out your retirement income budget so you can gain more financial freedom with your money.
There are many different pension policies that people can use to add to their monthly income when they reach retirement age, from your state pension to workplace pensions, you just need to decide which ones would be best for you, or if you are happy to rely solely on your state pension for a comfortable retirement.
Speak to The Professionals
This article should not be used to tell you exactly how much annual income you will need to retire on, you should always speak with a financial advisor to go over your plan, so they can discuss with you, what your post-tax annual income could be, mortgage cost projections, social care costs (if required), and income tax, as well as pension contributions.
If you would like an idea of how much income you will need when you reach your retirement, you can look at helpful pages such as the updated Retirement Living Standards from the Pensions and Lifetime Savings Association (PLSA) to help you with planning.
Similarly, if you want to set up a retirement account, you’d want to consider looking at savings schemes such as the IRA or 401k. There are other ways to save out there that you can use so speak to your financial advisor about to see which one would be best for you.
How to Work Out Your Retirement Income
There are some questions that you will need to ask yourself before you decide on how much you will need to save for financial security, here are some to think about that you can go over with your financial advisor.
What is The Minimum Amount That Will Cover My Outgoings?
You will have to ascertain the different expenses that can come with retirement to get a ballpark figure of how much you should save. To start with, you will likely have to cover healthcare expenses. This might also be coupled with your desire to move into an assisted living facility like Carlton Senior Living, or one similar to it.
Next, you will still have outgoings such as mortgage/rent, utility bills, and food to take care of. The sum total of these might not amount to much for a few months, but you ought to remember that you will incur these expenses for at least a few years.
Further, you need to take into account transport. If you have your own vehicle, there will be service and fuel costs involved.
Finally, it is probable that you have travel plans after you retire, which could cost a lot if you do not plan it well. Think about how much you spend on them now and what that may be like in the future, as you being at home more can mean that you use more of your utilities than normal.
This is a gist of a few things that you will need in your daily life to stay happy, healthy, and fulfilled.
Think about how much you spend on them now and what that may be like in the future, as you being at home more can mean that you use more or your utilities than normal.
How Much Money Will I Spend on Non-Essentials?
Eating out, going out with friends, jetting off on holidays, or traveling, you will want to put some money aside for those things as you can’t be expected to spend your retirement just staying inside the house and doing nothing.
Am I Saving Enough Money Now to Reach My Retirement Goals?
Are you on track with your savings and do you think that by the time you reach retirement age, you will have enough in your pension pot for exactly what you will need? It is always a good idea to start saving or investing for your retirement early as you never know what could happen.
Plus, there are pension calculators that you can use to estimate how much you need to save in order to reach your retirement goals. Setting up an automatic savings plan can also help ensure that you are saving regularly and consistently.
Can I Apply For State Benefits?
If you have made 35 years of National Insurance contributions, then you will be entitled to claim a state pension from the age of 66 years old (that may change depending on the year).
You are allowed to get up to 176 per week, which can be around 9,000 per year, per person.
However, whilst you may think that is not too bad, if you are solely relying on that it is far below what you need to retire on, you will need a better pension income.
Splitting Up Your Potential Pensions
You will need to think about the income you are getting for your pension in sections to understand what you might be receiving through the various ways that you can save or invest in for retirement.
State Pension
Your pension from the state will start at 66 years old.
When you hit this age, the government will provide you with part of your post-retirement money.
The new state pension shows that people who qualify will get around 203 per week (as of 2023/24), but not everyone, as said before, will get that much money.
Final Salary Pensions
The amount of income you will need from your private pension savings will depend on what type of private pension you have set up.
How much you get is based on your earnings when you are working.
You should be receiving annual updates which will tell you how much you should be expecting when you finally do retire.
You can connect this with the pension you will get from the state so you are able to see how much you will be getting if these are your only two sources of retirement income.
Defined Contribution Pensions
A defined contribution allows you to invest your pension contributions into a big pot, and when it comes to your retirement, you will have to decide how you can get an income from this.
You do have the option to take it all at once, however, this will result in you and you alone making sure the money is enough for you for your retirement and you will have to pay a large tax bill to do this.
Quite a lot of people who have this type of pension will go for an annuity or income drawdown, or they can combine them together.
Saving at Different Ages
If you wait to save your money at 4o years old and you are not a single person, then you are your partner will need to save 329 together each month so you can have a comfortable retirement when you reach the age.
That number can go into the thousands if you want a bit more of a luxurious lifestyle, so you have to think about what lifestyle you want and how you are going to save because being a single person will mean making those savings all by yourself.
Planning your retirement savings is a crucial step you need to take because you will need to take into consideration, a very important aspect of your life – your health. Post-retirement, you might develop certain issues like a geriatric disease or a chronic health condition that requires care and attention. The help for these, you can avail at an assisted living facility or other living options for seniors. Without a retirement fund, you may not be able to give yourself the necessary health-related assistance that will allow you to live your life freely.
It is difficult to predict the life you live when you’re in your golden years. So, you should prepare in a way that you can take on any circumstance without much hassle. In fact, if things work in your favour, you could even travel, and do the things you’ve always wanted to.
Now, if you are in your mid-20s you have a bit more leeway as you will only need to save a couple of hundred pounds to meet your goals.
Having upwards of 100,00 on your pension pot by the time you reach your 30s means that you will be able to achieve a comfortable retirement, but with the way the cost of living is going nowadays and house prices, that is incredibly hard for a lot of people to achieve, especially if they don’t have their own private pensions either.
- Comfortable Retirement – around 145,000 in your savings.
- Luxurious Retirement – around 470,000 in your savings.
As you can see, that is a lot for someone to save up, but with your private pension (if you have one) and your pension from the government, it should be able to give you a little boost.
It Differs on The Individual
There is no one size fits all answer to how you should save for your retirement as it all depends on individual circumstances, goals, and events that happen in your life. One might look favourably towards IRA investing, while others might prefer using a fixed deposit account. But in the end, you’d want to find out which one works best for you. So, look around and learn from guides that can probe you to look further into your options and discuss what you need to do with your money.
There are pension calculators that can give you a better idea, plus, there is much information on a variety of pension plans that you can look into if you think that it is the right time for you to start saving for your future.
Conclusion
Hopefully, the question – “How much do I need to retire on?” Has, if not been answered, helped you understand what you need to look out for when deciding on saving for your retirement as well as what you could potentially get.
It can seem a lot when choosing what to do with your money for later on down the line, but starting as soon as possible can give you some peace of mind when it comes to it as you never know what could be the outcome.