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Retirement planning – how much do I need?

Working out how much you need in a pension when considering retirement planning takes some getting your head around.

Not least because you are essentially transferring money from today to your future life.

For most of us there’ll be at least 40 years at work to fund up to 40 years or beyond in retirement. What we don’t put away now can’t be drawn from in the future.

But how much do you really need to retire on?

We call it The Number. The amount you need in your pension the day before you retire. The pot you have the rest of your life to live off, assuming you have no other income.

The Number depends on 3 key factors. I’ll leave the most important one until last.

  1. Firstly, your expected lifespan. I know it’s not something any of us wants to dwell on for too long, but for the purposes of planning your retirement you need to arrive at a figure to base your assumptions upon.

Average life expectancy stood at 83.1 for a woman and 79.4 for a man between 2017 and 2019 -the most recent data available from the Office of National Statistics.

Those reaching age 65 lived on average for another 18.8 years if male (reaching age 83.8) or 21.1 years if female (reaching age 86.1).

You’ll notice these are averages, so there will be some people living considerably longer than these ages.

What assumptions should you make for yourself?

My advice is always plan to age 100 which is what we do for our clients unless there are health reasons to suggest their lifespan will be shortened.

Retirement Planning to age 100 will ensure you should never run out of money.

  1. Assess the cost of your lifestyle.

Starting with a simple spreadsheet you’ll need to note all monthly income and expenditure. This may change upon retirement with mortgages paid off, and work-related expenses reducing. On the other hand you may wish to spend more on holidays and leisure activities.

With this in mind you’ll need to prepare a 2nd version of your spreadsheet which will anticipate your expenditure throughout retirement.

You don’t have to move far down this process to realise there’s a whole host of assumptions which need to be built in to your calculations and need updating each year.

Assumptions like:

  • Rate of inflation
  • Rate of investment growth
  • Taxation
  • State pension

And you need to ‘crash test’ the figures you come up with to withstand market downturns and recessions where the values of many investments can fall considerably.

  1. Regular pension contributions

Many people do not take their pension contributions seriously until they reach their 40s or 50s. It’s important to understand that while we all want to live the best life we can right now, not saving enough for retirement will mean working longer than you expected or a reduced standard of living later on in life.

However, there’s no need to panic – you may have some past employers’ pensions which could be combined into a personal pension under your control.

The fact you are reading this article means you are taking your future seriously.

The aspect which makes the most difference to how much you can build is regular pension contributions for as much as you can afford.

This really is an area in which independent financial advice for retirement planning pays off. A good firm will have sophisticated cashflow planning software which can give a detailed idea of the date at which you can reasonably retire and how much you’ll need to have in your pension to live the lifestyle you desire.

While that end number is different for everyone, knowing it in advance and having a sound financial plan and active fund management in place remains a good strategy for everyone.

Interested in finding out more?

Seeking a second opinion on your financial future costs you nothing.

Simply call our friendly team on 0121 355 4455 or drop us an email to appointments@oaklandswealth.com to arrange a confidential chat.

Oaklands Wealth Management, founded by Helen Blackburn in 2004 advises clients across the UK on retirement planning, pensions & investments.

Her firm holds British Standard BS 8577 for client service & investment process.

Minimum investment is £500,000 (£650,000 for pension transfers).

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