Will I have enough?
These are questions we’re most often asked, and I’m afraid there isn’t a one-size-fits-all answer. I think people get frustrated by hearing “It depends…”, but it truly does. We are each wonderfully unique.
How much is enough for the rest of your life depends on what your life looks like. If you have big expectations with big spending, having enough will mean having a big pot. If, on the other hand, you’re modest in your lifestyle and spending, then having enough will mean a much more modestly-sized pot.
It’s worth remembering, a pot isn’t just a pension, it’s all the financial stuff you’ve accumulated: pensions, ISAs, Investments, savings etc.
A general rule of thumb is that the income you need to live on should be 5% of the value of your ‘pot’. For easy maths, if you need £50,000 a year before tax, then you probably need a pot that adds up to about £1,000,000.
Begin by working out what you need to live on each year. However, when you’re working it out, make sure you include that cup of coffee and cake at the nice coffee shop by the river when you walk the dog, or the bunch of flowers you just couldn’t resist. Also include the travel adventures you’d like to go on as well, near or further afield. Don’t just add up the bills and food, that’s not living, that’s existing. It’s different.
Add up all those numbers, horrify yourself with how much you spend (it’s always more than you think when it’s cold hard facts on paper) and then check them over with a reality head on. Once you’ve got over the amount it adds up to, don’t panic and think ‘‘That’s it I can never afford to stop working!” You can and you will.
Take the next step. Take your total amount, then subtract the amount you’ll receive as State Pension. It’s easy to get a forecast of your State Pension and when you’ll be able to start receiving it at www.gov.uk/check-state-pension. (See my blog You can’t trust pensions, can you? for more on pensions).
Back to my easy maths example from above. If you have a State Pension of £8,500 for example, then your pot now only has to produce £41,500 – much better. If you’re one part of a couple, then 2 x £8,500 makes it even better and suddenly you only need to find £33,000 a year. Your pot then needs to be £660,000 or 2/3 of your original thought. Much less scary, and starting to look doable now, right?
You’d be surprised where it all comes from and how it adds up. Read my blog to find out more about how to work out where your retirement money is coming from.
If you’d like a clearer picture of where you are now financially, and where you could be with a new financial plan, then please give me a call on 01488 682890 for a no-obligation chat.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.