How much is enough in retirement

It might seem a long way off but the later you leave it the less chance you have of achieving the retirement you want.

The Retirement Living Standards, based on independent research by Loughborough University, have been developed to help us to picture what kind of lifestyle we could have in retirement. It shows what retirement may look like at three different levels – Minimum, Moderate and Comfortable - and what goods and services would cost for each level. This can be found at https://www.retirementlivingstandards.org.uk/

The research is eye-opening! A single person will need about £10,200 a year to achieve the minimum living standard, £20,200 a year for moderate, and £33,000 a year for a comfortable lifestyle. For couples, it is £15,700, £29,100 and £47,500 respectively.

The minimum lifestyle covers all your basic needs with occasional activities and one basic holiday a year. The moderate lifestyle fairs better providing better financial security and more choice on spending your money, whereas the comfortable living standard allows you to be more spontaneous with your finances and affords the flexibility to go on more holidays, eating out regularly etc. The question is which one do you want enjoy ?

The current full basic state pension is £9,100 per year. As the State Pension is less than the minimum lifestyle highlighted earlier then saving for the retirement you want is crucial and the earlier you start the more chances you have of achieving the lifestyle you want. The State pension, though for many will form the very basic backbone of most people’s retirement plan, it is also inflation proofed income that’s guaranteed to be paid for the rest of your life no matter what. To put this into context if you were looking at age 65 to purchase on open market annuity this would cost just over £300,000. So it’s really Important that you maximise your state pension wherever possible.

You can get your state pension forecast, www.gov.uk/voluntary-national-insurance-contributions, which will tell you what you have built up to date and how many years you may be short of the full pension. For every year you are short it reduces your annual pension by £260. To buy an additional year currently costs £795 to buy one year. If you are short there could be options to purchase additional years.

How much should I contribute to my pension?

It is never too early/late to start thinking about retirement. However, what you actually choose to contribute is a very personal decision and should be based upon factors such as your age, the affordability of further contributions, what you already have and the income you are seeking to build for your retirement.

So whilst there are no hard and fast rules the basic advice with pensions is to put in is as much as possible, as early as possible. On the Martin Lewis website, www.moneysavingexpert.com, there's a very rough rule of thumb for what to contribute for a comfortable retirement. Take the age you start your pension and halve it. Then put this % of your pre-tax salary into your pension each year until you retire. So someone starting aged 32 should contribute 16% of their salary for the rest of their working life. While 16% of your gross pay seem a huge commitment, this figure does include your employer's contribution - so it’s the difference you need to fund.

What you will receive from a personal pension (defined contribution) scheme the pension is dependent on how much you save and also the investment return ultimately achieved.

Also, don’t forget other pensions you may have such as a defined benefit pension which is based on salary and years in the scheme which will give you a pension income each year from your scheme retirement date.

Everyone is different and we are all at different points in life and many people may already have built up pensions elsewhere so it is very important to assess what you already have.

At Armstrong Watson Financial Planning & Wealth Management we work with you to build your retirement plans and regularly review these so you know if you will remain on track. We can use cashflow forecasting to allow you to understand your plan more easily so you can make informed decisions.