Financial planning / Pensions

What’s your magic number?

When it comes to retirement, a common issue is how much to save, or what your final pension pot should amount to. This ‘magic number’ is different for everyone and depends on a number of things including your age, earnings, health and lifestyle, as well as your own perception of financial freedom and personal financial position. Stuart McCulloch, our Middle East Market Head, explains how you can determine your magic number.

Doing the groundwork (ASAP)

The first step in finding out your magic number is to do the groundwork and consider some crucial questions. Ultimately what you need to determine is the amount of capital which you’ll need to fund the lifestyle you want during retirement. To get started consider:

  • When do you want to retire? And therefore, how long does this pot of money need to last?
  • How much monthly income is needed to support your post-work life? Don’t forget to consider other sources of income which you might be entitled to such as the state pension and income from property.
  • Think about what you want your retirement to look like; what does financial freedom mean to you, and are there any life goals you’re keen to achieve?
  • Do you have particular dreams about homes and property? Would you prefer a larger home in the UK?’ Or one or more overseas too?
  • If spending time overseas is important, have you considered your currency requirements and whether you have the funds you need in the currency you require?
  • Are you planning a globally mobile lifestyle which includes regular holidays or travel?
  • Do you want to have the ability to provide for children or grandchildren by way of savings, houses or education costs?
  • What type of lifestyle are you keen to adopt? Are there particular hobbies and interests you want to pursue such as eating out, socialising, investing in art, buying a new car or boat and so on?
  • Do you want to leave any legacies behind? If so, how much would you like to leave and what planning have you undertaken to pass on your wealth as tax efficiently as possible?

It can also be useful to bear in mind the 4% rule – which suggests you’ll need to withdraw 4% of your pension during each year of retirement. It’s a useful way of working out the size of the pension pot that you need to have. You can then review your current savings and decide if you’re on track to meet your retirement goals.

The hard reality

Many people start thinking about their retirement plans too late, leaving a shorter period of time for savings to grow. By starting earlier, there’s more chance for long-term growth, helping make it an easier process to reach the magic number required, especially given the effect of compound growth.

Of course, it’s important to realise that this can be easier said than done. It’s hard to balance living for today with putting away enough for the future as well as protecting against uncertainties – there’s only so much money to add to each pot!

But let’s reality check. We’re all living longer, and so our retirements will be longer too and cost us more. Yet many people are still keen to retire at conventional ages; our perceptions about expected retirement ages aren’t always aligned with the fact that we’re going to need to fund our lives for perhaps 20 or 30 years after finishing work.

If you plan to retire aged 65, or earlier, then you need to be confident on the calculations you’ve made to ensure that you don’t run out of money in later life. Working with a financial planner can help you feel more at ease with your decisions and plans.

Steps to take

Once you’ve a clear picture in mind, take some time to calculate how much is currently in the pot. This might include current pension savings, property income, state pensions and any other income you’re likely to receive for the long term. This total offers a rough guide which can be projected forward to give a picture of your position at your retirement date. Part of this work needs to include the impact of inflation which can significantly impact your purchasing power over the long-term. Your financial planner can be of great help here, enabling you to identify whether there’s a gap between what you want and what you have.

If those gaps are there, then it’s important to face them head on. Save regularly; even small amounts will add up over time. As a general rule it’s suggested that you set aside half of your age into your pension so if you’re 30 you should put aside 15 per cent of your income, whereas if you start at 40 it is 20 per cent.

Once your plans start to shape up, it’s important to put together an investment strategy that fits your goals and objectives. So you might be happy to follow a more adventurous approach earlier in your career when time is on your side before moving to become more balanced or even conservative as you approach retirement. Don’t forget that any funds will typically remain invested for many years beyond your actual retirement date so it may no longer be suitable to reduce risk toward your retirement date.

Keep track of your progress against your goals and identify changes to your investments or savings rates required to give you the best chance to meet them.  And do seek out an expert – cash flow modelling and scenario planning are important giving peace of mind.


Your ‘magic number’ for retirement should reflect your unique circumstances, plans and lifestyle. By identifying any particular goals which are important to you as soon as possible, you’ll have more time to achieve the retirement of your dreams.

Try not to ignore or put retirement planning off to another day – get started and keep going and if you need help then seek it out as soon as you can. This will give you and your financial planner the best chance of helping you meet your goals without impacting your ability to live today. A complete financial plan can work in your favour over time, and ensure that an otherwise daunting task becomes more manageable.

To discuss any aspect of your retirement plan please contact your nearest office.