The financial planning journal

How much do you need to retire?

7 June 2021

£825,000… If you aim to retire comfortably that’s how much you’re going to need!

21% of over 50s in the UK have no pension savings at all and, of the 79% that do, they have an average pension pot of around £146,000. This provides a fairly measly £5,800 a year to live off.

The Pension and Lifetime savings association and the University of Loughborough have carried out a significant piece of research into the amount required per annum to give you a ‘comfortable retirement’ and they concluded it was £33,000 a year. This sum certainly isn’t a lavish figure: It’s enough to provide £56 a week on food, enjoy a nice holiday in Europe and spend £1,000 a year on clothes, shoes and other gifts.

So, what on earth is going on here? We are going to see huge numbers of people, who are used to quite comfortable living standards during their working lives, have a pretty miserable retirement.

Why? Well, it’s because we are afraid to look ahead to it. Thinking about next year is sometimes too much, let alone ten or twenty years ahead. It’s essential we overcome this though.

UK adults have around a 33% chance of living past 90-years-old now – not saving for tomorrow is one of the most significant mistakes we’re collectively making as a country.

To work out how much you might need in retirement, look at how much you are spending annually today and simply divide it by 4%. That should, as a rule of thumb, provide a rough estimate as to how much you need to save.

In the industry, this is commonly known as the ‘4% rule’ or the ‘safe withdrawal rate’. Its use is hotly debated and it’s accuracy can certainly be challenged but it’s a really helpful starting point.

So take that £33,000 a year, divide it by 4%, and you’ll need £825,000, which is a pretty significant sum of money.

Get saving and investing today and stop waiting for tomorrow…

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