Can you actually afford to retire?

afford to retireMost of us have plans for retirement.  We might want to taking things a little more easy, and we won’t miss the daily rush to work, but if we are fit, we will want to stay active. Travel, seeing more of the family – perhaps even turning a hobby into up a small business.

But can we actually afford the lifestyle we want? In fact, can we even afford to retire?

You could have a long retirement to pay for

if we retire at state pension age the statistics suggest we could spend twenty years in retirement. If fact, if we retire at 55 – the earliest date for taking a private pension – we could actually spend more time as retirees than we did as workers.

That really is a long time to fund. According to recent research by Aegon those aged 55-65 may currently have an average of £105,496 in their pension pot.

But this might not be enough.  Because of historically low interest rates the income from pension savings has fallen to rock-bottom lows. A pension pot simply generates a smaller income than it used to.

In 2002/03, a pension pot of about £150,000 would have bought a private pension of £9,000. Today, you would need £260,000, and with interest rates looking to remain low things don’t look as though they are going to get any easier.

If want to retire on £20,000 a year (plus your state pension) the best annuity rates at the moment in the UK are a little over 5% which means you would need a pot close to £400,000. But that is a flat £20,000 which does not account for inflation; if prices rise at 3% a year, the value of that pension will halve by the time you reach 90. To get an income of £20,000 that can rise in line with prices, you would need a pot of £619,000.

The most important financial planning decisions you’ll ever make will be working out how to build enough savings to provide adequate income to sustain your standard of living throughout retirement.

You need to act today to be comfortable tomorrow. Yet too many of us are projected to fall short.

What can you do?

It’s not all gloom and doom and working until you drop. There’s a lot you can do to help you build up the pension you need.

You probably can’t rely on an occupational pension scheme to provide the level of income you want. Those who rely on the government’s auto-enrolment scheme are currently likely to accumulate only half the amounts they need for a comfortable retirement. The solution for most of us is to set up a private pension and make saving a priority.

Remember, your pension is a great investment, thanks to the generous tax relief provided by the government. This means every pound you save costs just 80p if you are a basic rate saver, and even less if you are a higher, or top rate tax payer.

How much you will need to save will depend on your age, and how much you can expect from your work pension and state pension together. There are two important things to be aware of. The first is that the sooner you start investing in your future, the longer your money will have to grow, and the less it will cost each month to build up the sum you need.

The second is that getting expert help is essential. At Continuum, we will be very pleased to provide it.

The value of pensions and the income they produce can fall as well as rise and you may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

Get in touch

If you would like to discuss further please call us on 0345 643 0770, email us at [email protected] or click on the ‘Contact Us’ link below. Thank you.

Sources: – Can you afford to retire? – 5th October 2017 – Can you afford to retire? – 17th April 2014 – Aegon UK Readiness Report – April 2016

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