Most of us want to look forward to a comfortable retirement. However, it can be hard to know how much we really need to see us through our later years.
One problem is the distorting effect of inflation. It means that what seems like a generous sum when we start saving into a pension can start to look rather meagre when we come to rely on it to provide an income.
Another is that we simply donโt know what we can expect from the savings we put into our pension pot. We know they will be boosted by tax relief, and we hope they will be boosted far more by the skills of the investment professionals who manage them for us.
But there is another problem. We donโt know how much we really need in our pension pot โ or even if we can realistically expect to achieve it.
At Continuum we are looking at how much you might really need for a luxury retirement โ and how it can be within your reach.
What kind of retirement do you want?
According to consumer group Which?, we need an annual income of ยฃ31,000 to fund aย luxury retired lifestyle - or ยฃ41,000 for a two-person household.
Luxury includes long haul foreign holidays, a new car every year or so and regular eating out.
These figures may not sound large enough to provide for your needs, but if you assume that your home is paid for and you no longer face the cost of commuting, you may be able to enjoy retirement with a smaller income than you expect when you are working.
Someone who will settle for a โcomfortableโ retirement would still need at least ยฃ19,000 per year or ยฃ26,000 for a couple. This would be enough to cover the essentials and regular short-haul holidays, and a few luxuries.ย
But what kind of pension pot do you need to provide those levels of income?
So what kind of retirement are you headed for?
Achieving the luxury standard of retirement living would require annual savings of ยฃ3,303 from age 25. Again, according to Which? this would add up to ยฃ422,140 by retirement age. This analysis has assumed investment returns of 5% per year, the long-term average.
But what can you do if your pension pot is going to fall below target? The average UK pension pot stands at just ยฃ61,897. With current annuity rates, it would buy you an average retirement income of only around ยฃ3,000 extra per year from 67.
But you donโt have to settle for an impoverished old age.
Improving your pension outlook
We provide you with our top three tips that you can do to boost your retirement prospects.
- Remember the State Pension entitlement. At ยฃ179.60 a week, it is not enough for most people to live on โ but it can be a big help to reach the level of income you need. Make sure your National Insurance contributions are up to date.ย
- Ensure you are making the most of your current pension plans. Thanks to the very attractive tax position for pension contributions, it makes sense to pay in as much as you can โ because the more you put in, the more the taxman will.
- Get some expert advice. At Continuum we can start with a pension review โ a detailed look at your existing arrangements and a clear forecast of the kind of pension you can expect from them.ย
Then we will look at different strategies which can boost your retirement wealth. It could be that a private pension plan may be needed to work alongside any employers plan you already have. We can make it easy to set up the kind of plan you need.
We will look at the resources you can call on, the amount of time you have before your target retirement date โ and work out ways to build the kind of pension pot you need for a luxury retirement.
Of course, when it comes to pension saving, time really is money. The sooner you start planning for your luxury retirement and building the pension pot you need to fund it, the less it will actually cost to do so.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.
