17 September 2024
general
How much is “enough” when it comes to saving for retirement?
It’s one of the fundamental questions that must be answered if you’re to create an effective financial plan, yet many underestimate what the important figure might be.
Pensions Age reports that only 39% of high earners in the UK are on track to be able to afford a “comfortable” retirement. If you’re among those who are under-saving, you might find that you’re unable to retire when you’d like to, or you might need to adopt a different lifestyle in retirement than what you had envisaged.
Fortunately, there are steps you can take today to calculate how much you need to save for retirement. When you know this figure, you can take action today to ensure you remain on track throughout your career. Read on to learn more.
There are some rules of thumb about how much you’ll need to afford a “comfortable” retirement, but these aren’t always as useful as they seem
Look online and you’ll likely find plenty of articles about how much you need to save for a comfortable retirement. But remember that what you consider to be a “comfortable” retirement might be quite different from what your partner, friends, or colleagues would think of.
The Pensions and Lifetime Savings Association (PLSA) considers a comfortable retirement to include:
For a single person, the PLSA estimates that this lifestyle would require an annual retirement income of £43,100. For a couple, this rises to £59,000.
This provides a broad rule of thumb to give you an idea of how much income you might need in retirement to be able to enjoy financial freedom. But what if your dream retirement differs from this picture?
The amount you need to afford your dream retirement depends on your personal goals
The problem with the guideline figure that the PLSA offers is that it does not take your personal circumstances or goals into consideration. Moreover, it assumes that you’ll have the same expenses every year, which is unlikely to be accurate.
For example, what if you have a specific hobby you’d like to pursue in retirement that might be costly? Or what if you’d like to travel extensively in the first few years of your retirement before settling closer to home?
Being specific about what you want your retirement to look like is the first step to calculating how much income you might need. So, take some time to reflect on what brings you joy and contentment. How would you like to spend your post-work years?
Then, conduct some research to find out how much these specific goals might cost to achieve.
Your adviser can help you to calculate the total savings you’ll need to achieve your dream retirement.
Knowing how much income you’ll need in retirement is the first step – the next is to create a plan for generating this income. How can you ensure you have enough saved in your pension to provide this income for the rest of your life?
This is where your adviser can help. Using a tool called “cashflow forecasting”, they can create a visual representation of your estimated net worth over the course of your life. The software can then plot this against your anticipated income needs.
A cashflow forecast can show you how your pension and other savings are likely to grow over time if you continue contributing to it at the same rate as you are now. It will use data about your existing assets and liabilities, your preferred retirement date, and informed estimates about potential investment returns and inflation to do this.
The forecast will then demonstrate whether these savings are likely to be sufficient to cover your anticipated expenses throughout your retirement. This can expose any potential shortfalls you might face later on.
Consequently, your adviser can help you to put a plan in place that ensures you set enough aside today to create financial security throughout your life. This figure that you’re working towards will be unique to you because it’s based on your personal goals and priorities for retirement.
With a cashflow forecast, you’ll never need to wonder whether you’ll have enough to retire – you’ll be able to see how your savings could support you in achieving your goals.
Get in touch
To find out more about how our team can help you to save towards your dream retirement, please get in touch.
Email enquiries@jesellars.co.uk or call 01934 875 919 to start the conversation.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate cashflow planning.
