How Much Do I Need To Retire?

Everyone’s circumstances are different which is why we cater for a range of clients. The biggest thing to understand is your monthly outgoings. Do you have a mortgage? How much are your bills? What are the little extras that you have each month? We recently wrote a blog article on what you’d need to retire at 55?.

The Pension and Lifetime Savings Association revealed that 77% of pension savers have no idea how much they’ll need in retirement. Thankfully, the PLSA’s figures have broken down the average yearly costings for singles and couples living outside of London.

For singles, the PLSA suggest that £20,200 per year will be enough to live on with moderate lifestyle during retirement or live on £33,000 for a comfortable lifestyle.

According to a report by the International Longevity Centre, the average retirement age in the UK is 64.5, but did you know that you could retire much earlier than that?

Many think they can only down tools once they’ve hit State Pension age. Yet, this isn’t the case, and you could possibly do it a decade early, thanks to being able to access private pensions from the age of 55.

It’s all about time and money.

How much time you have and how much money you’ll need to fund the retirement lifestyle you want.

Simple, right?

You might be thinking that ‘once I retire, I’ll have to stop spending‘. However, with the proper retirement planning, you could live the life you want instead of just getting by.

What is a comfortable retirement income for couples?

According to research (2021), couples in the UK need a minimum retirement income of £15,700, to live a moderate lifestyle for £29,100 or £47,500 to live comfortably.

These stats are a national average outside of London, and your circumstances could be different. Maybe you don’t take a holiday every year, or you’re not one for splashing out on designer labels. It’s all about what things matter to you.

What is a comfortable retirement income for a single person in the UK?

For the average single in the UK, £20,200 per year will be enough to live a moderate lifestyle during retirement or £33,000 to live comfortably.

Can I afford to retire?

It all depends on how you want to spend your retirement and the lifestyle you want to live. Working out a plan of action is the first step to understanding your affordability. We’ve had clients who want to spend more time with their family and some who want to jet-set around the world. In our piece ‘Can I retire at 55‘ we attempted to answer some of these all-important retirement planning questions.

We factor in what you want to do once you retire and balance your time and goals as well as your finances.

Our clients Jim and Jan are two of the many happy clients who’ve been able to live their dreams in retirement.

“We know what our budget is, and we work in it, but we can be more relaxed, and it’s much easier. We’re able to sleep easier at night.”

Did you know…

According to government figures in 2017-18, the average weekly retirement income is £304 after you’ve taken away taxes and housing costs. This works out at around £15,080 net per year. This doesn’t take in to account that you may have already paid off your house, so you could be sitting even prettier than this.

Only by working out how you want to spend your time in retirement, i.e. on holidays or with your family, is it really possible to begin to see if your pension and savings will be enough income for you.

What pension do I have?

Before you put your feet up in the garden or start planning holidays, you need to figure out which type of pension/s you have and what options are available to access them. You may want to use a company or service to help consolidate your pension into one manageable pot.

This can be confusing at first, but essentially there are two kinds of pension schemes in the UK: Defined Benefit and Defined Contribution.

Which one you have can affect what you can do with it, so it is worth bearing that in mind.

Defined Benefit

This pension is also known as a final salary or a career average pension. This type of pension provides a guaranteed income for life. How much you get depends on your length of service in the scheme and salary levels whilst a member (they can be final salary, so your final salary is used to calculate benefits, or they can be based on the average salary earned during membership of the scheme.

There are many members in a defined benefit (DB) pension scheme, and each member pays a percentage. Your employer then subsidises — sometimes paying as much as three times the amount you put in.

Advantages

• Guaranteed – payments continue throughout your life and are protected by the Pension Protection Fund (PPF). Most DB pensions increase every year by some form of inflation protection.
• Simple – you know how much you’re going to get every month, like a wage.
• Subsidised – you’ll likely get a lot more back than you paid in.

Disadvantages

• Inflexible – once you’ve set what you’re getting you can’t change this and take more or less at a later date.
• Hard-wired – if it comes with spousal benefits you can’t turn these off, even if you don’t have a spouse/partner
• Dies with you (or your spouse if a spousal benefit is included) – when you die the payments stop, so generally, no money can be passed to beneficiaries such as your children.

Defined Contribution

A Defined Contribution (DC) is the more common type of pension. You might know these as SIPPs, personal, workplace, stakeholder or ‘money purchase’ schemes.

These are fundamentally different from DB pensions, in that you’re the only member.

These pensions rely on what you pay into them, and if it is a workplace one, your employer too.

This money is then invested in the markets to hopefully grow over the long term. Once you hit 55, you can take a 25% tax-free lump from your pension, either all at once or in small amounts.

With the remaining 75%, you have the options of choosing an annuity or drawdown.

What’s an Annuity?

These are similar to a DB pension, giving you a guaranteed income. However, unlike a DB pension, these are customisable, allowing you to add a spouse’s pension or increase monthly amounts in line with inflation. In some cases, if you have a life-shortening health issue, the insurance company can agree to pay a higher amount.

Advantages

• Guaranteed – payments continue throughout your life (or agreed term) and are protected by the Financial Services Compensation Scheme (FSCS).
• Simple – no need to worry about investments or market volatility.
• Customisable – you can tailor it to what you want at the outset.

Disadvantages

• Inflexible – once you’ve set what you’re getting you can’t change this and take more or less at a later date.
• Dies with you (or your spouse if a spousal benefit is included) – generally speaking, when you die the payments stop, so no money can be passed to beneficiaries such as your children.

What’s Drawdown?

The second option is that you drawdown. to access the money how and when you want it. You get much more control over your money with this, but with it added risk.

Like everything in life, too much freedom isn’t always a good thing. If you use that flexibility to overspend, your pot could run out quicker than you anticipate.

Plus, there are investment risks and also tax implications should you take large amounts from a drawdown pension.

This option does, however, have a death lump sum, allowing you to pass on the remaining pot to whomever you wish.

Advantages

• Flexibility – you’re in full control of when and how much money you take.
• Death lump sum – if there’s money left when you die you can pass it on to whoever you want.

Disadvantages

• Investment risk – your money remains invested in the markets, which can go down as well as up. However, this risk can be managed by choosing investments suited to the level of risk vs reward you’re comfortable with.
• Withdrawal risk – this is twofold. Firstly, you take too much, too soon and your money runs out. Secondly, fear of running out stops you drawing your money, and you end up 20 years down the line with a large pot of money that you no longer have the time or inclination to do the things you want with.

Transferring your pension

If you have a DB pension but like the sound of an annuity or drawdown, in most cases, you can opt to transfer it to a DC scheme.

You do this by taking advice from a firm who can advise on DB pension transfers. Essentially your scheme will provide you with a Cash Equivalent Transfer Value (CETV) which is lump sum provided by the scheme, to ‘buy’ you out of the scheme.

It’s always worth getting some help and advice to make sure whichever option you choose is right for your individual circumstances. Plus, if your DB pension savings are above £30,000 you’ll need to get professional, regulated pension transfer advice

Next steps?

At Joslin Rhodes, we take clients through the whole process of working out what they want their retirement to look like before considering their assets to work out how to get it for them.

Our expert pension and retirement planning team work very hard to give clients the lifestyle they want.

We’ve had many clients from all walks of life – some who’ve been astounded to find out they’re actually better off in retirement, some who were told they could have done it five years earlier, and some who’ve completely changed their life and never looked back.

Using the unique PlanHappy Lifestyle Financial Planning process we’ll help you work out what you want to do in the future, then do the money bit to work out how to get you it.

Ultimately, it’s all about making sure you live the best life you want and giving you the tools, you need to do that.

Ready to talk?

Our friendly team are here to help, call 01642 525511 or click to arrange a call back from one of our experts to help you answer the question, how much do I need to retire?