Do You Know How Much Retirement Will Cost…?

21 Jul Do You Know How Much Retirement Will Cost…?

Recent research by ‘Saga Investment Services’ (SAS) indicates that 40% of people over 40 have no idea how much money they will need to provide a basic standard of living in retirement. Worryingly, 80% did not know what size pension pot they would need either.

When you retire, your expenditure tends to decrease. As a rough guide, it is estimated that you should aim to have two thirds of your working income as your pension income to maintain the same lifestyle.

SAS estimated that the cost today of a basic lifestyle (based on 66% of a salary on the National Living Wage) would be £10,400. The respondents in the survey estimated that a pension pot of £126,000 would be required to provide this. Sadly, that size pot will only produce an income of around £6,900. This is based on purchasing an annuity by a healthy 65-year-old. That figure could go up or down depending on various factors, such as whether you are married or want a pension that will increase in line with inflation.

There is also the state pension to bring into the equation. Currently the state pension age for men is 65, and 64 for women. However, for both sexes it is increasing to 66 by 2020, and is expected to rise to age 67 in the later 2020s. Today’s teens and those in their early 20s can expect a retirement age of 70.

Therefore, if you want to retire earlier than the state age pension kicks in, your private pension pot will need to cover the lifestyle you wish in the interim.

The research showed that people generally underestimated by around 50% the size of pension pot they would require for the lifestyle they wanted. People generally thought that a pension pot of £244,000 would provide for a comfortable lifestyle, when in fact it only provides an income of around £13,300. They also thought a luxurious lifestyle could be achieved on a pension pot of £500,000. This would pay out around £27,000, which would be nice, but won’t cover many exotic holidays or expensive hobbies.

A recent survey by ‘Which?’ backs up those figures.  Their retired members indicated they spent around £26,000 per year. This covered the basic bills and expenses and allowed for dining out, hobbies and an annual European holiday. They calculated that you would need £39,000 per year if you wanted long-haul trips and a new car every five years.

Many people are not saving enough to fund the lifestyle they would like in retirement. The sooner they take action, the more that can be done to bridge the gap.

In addition to helping clients put in place robust provisions and valid documents, to protect their loved ones and their assets both during their lifetime and after their death, Heir Tight Wills works with an array of high quality Financial Advisors, to assist their clients who don’t currently work with one.  For a FREE Consultation to discuss writing or updating your Will & estate planning provisions, or for assistance in reviewing your financial situation, contact Rachael Rodgers on 0845 519 7585, or CONTACT US via email.