How Much Money Do You Need To Retire?
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As someone who writes about money for a living, you’d think I would have all my financial ducks in a row, so to speak.
While I’m very good at saving money day to day, and reasonable at saving for the short term such as for Christmas or a holiday, there is one area I’m ashamed to admit I have nothing saved for – my retirement.
I’m not alone. According to figures published by the FCA, one in three people in the U.K will have to rely solely on their state pension – currently estimated at around fifteen million of us.
How Much Money Do You Need To Retire?
My husband doesn’t have any sort of savings pot for his retirement either. Neither one of us has ever had a job where they offered a company pension plan. By the time offering one became compulsory we were both self-employed.
While we’ll both receive a state pension, neither of us feel this can be relied upon to provide the type of retirement we’d like to enjoy. The only thing we can be sure about is that we’ll own our own home by then which will at least alleviate some of our living costs.
Burying our heads in the sand
It’s so easy to bury our heads in the sand when it comes to talking about pensions – from not understanding how they work and how to track them down to finding the technical financial jargon confusing – they can easily put us in a bit of a spin.
Starting to save for a future that could be thirty plus years away can seem pretty daunting too, especially when as a generation we’re so used to living in the now. Add into the mix increased living costs, inflation and limited pay rises, saving into a pension can often seem like the last thing we want to be doing with our money.
What will your retirement look like?
I actually have a really great example in my parents when it comes to pensions. My Dad has worked for the same company for over thirty-five years and always paid into his company pension.
At age sixty he was able to semi-retire, a decision made in part because of ongoing health issues. I was so glad he was able to put his health first and not suffer financially for doing so.
He was able to pay off the remainder of their mortgage and can now spend more time with my Mum and his granddaughter.
Other than buying a house, my Dad feels paying into a pension was one of the best financial decisions he’s ever made.
While it might be difficult to picture your own retirement right now, it might be worth looking at your parents, or even grandparents to see what sort of lifestyle they’re currently living thanks to their pension. Are they able to go on holidays, enjoy meals out and spend money on hobbies?
Or are they worried about working into their seventies and having to account for every penny?
I know which of those scenarios I would prefer. However, I don’t actually know how much money we’ll need for that type of lifestyle in retirement or if we’ll be able to afford it on a state pension alone.
Planning for the Future with a Pension Calculator
I recently came across the phrase ‘be your future friend’ thanks to The Organised Mum Blog.
This means doing things now that’ll help you in the future such as putting some washing away now, rather than later when then kids are home or doing some cleaning ahead of time rather than waiting until an hour before visitors arrive.
This could also apply to pensions. Paying into a pension now is definitely something your future self will thank you for, especially if it means being able to afford a better quality of life when you retire.
What can be difficult, however, is figuring out exactly how much money you’ll need to retire on, so I’ve been using a Pension Calculator from Profile Pensions.
Profile Pensions is keen to make pension advice accessible to all – no matter how big or small your pension pot might be. The advice given by Profile Pensions is impartial and they are not influenced by special offers or commissions – so you know they have your best interests at heart.
Profile Pensions Pension Calculator is easy to use and you don’t need any financial information on hand to be able to use it.
It’s simply a case of filling in a few details such as whether you have a partner to share costs with and whether you’ll own your own home on retirement. You also fill in the age you wish to retire at. It does make a few assumptions to be able to work, such as how much you’ve paid in national insurance. The Pension Calculator aims to show around 77% of U.K people how much they might need in retirement.
Will I have a ‘Modest’ or ‘Comfortable’ retirement?
The main feature of the Pension Calculator from Profile Pensions is showing what sort of lifestyle you can expect to have when you retire and how much of a top-up you would need in addition to your state pension to get there.
A modest lifestyle would include an annual self-catering U.K holiday, eating out a few times a year, and a monthly takeaway. However, there would still be a need to budget and keep a close eye on spending.
A comfortable lifestyle would include European holidays, money for hobbies and being able to afford to shop at more upmarket stores.
I know which one of these I would prefer! However, unless I start saving into a pension soon I know which one I’ll be getting.
Crunching the Numbers
I used The Pension Calculator to crunch the numbers for my husband and I based on a retirement age of 67.
We have a mortgage, so I went with the assumption we would own our home by then. Using figures from November 2018 the calculator estimated that our annual combined income from our state pensions would be £17,005 – enough to have a slightly better than modest lifestyle but not quite a comfortable one either.
The thing is, I don’t want to just be modest in retirement. I want to really enjoy it! I want to spend the time with family, to travel, to take up hobbies while I still can. T
o have this type of lifestyle my husband and I would need an additional £7,656 a year between us in private or company pensions. I am very aware the longer we leave getting a pension sorted the more money we’ll have to find each month to put into it.
This is why paying into a pension early is so important – the earlier you start saving the more comfortable your retirement will be.
Why not find out what your own retirement might look like using the Pension Calculator?
Profile Pensions is a trading name of Profile Financial Solutions Ltd which is authorised and regulated by the Financial Conduct Authority. The advice given is totally impartial and is restricted to pensions only. The value of your pension can go up or down. Capital is at risk.
Very interesting post and one that so many persons can benefit from. I do feel overly concerned about my ‘pension status’ too. I better get going at looking into it and sorting something before too long.
Thanks for sharing this insightful piece.