When helping clients with retirement planning, we are often asked how much should be saved. The answer is dependent on many things – not least age, earnings, health, lifestyle and more. Yet in the quest for the ‘magic number’ Jeremy Woodley, our CEO, explains why it’s useful to consider your missing million.
It’s no surprise that many people don’t consider retirement planning until later years, and then find there is not enough set aside to support a desired lifestyle. Planning so that you can enjoy today, whilst making sure there is plenty saved for future years, can feel daunting.
Yet it’s worth noting that our retirement years need to be properly financed, not least because we are all living longer. The number of centenarians in the UK has increased by 85% over the last 15 years – and the impact on pensions and savings is significant, notably because many people will still want to retire at the ‘expected’ pension age of 65. Attitudes may shift slightly as the state pension age is extended, but longer life expectancy will certainly impact any planning. As a result it’s more important than ever to ensure you have the right pension provision to cover your (hopefully lengthy) retirement years.
A new study by Loughborough University, commissioned by the Pensions and Lifetime Savings Association, was recently published to help highlight the level of savings needed to provide for a comfortable retirement. In short it offered a fairly formulaic picture of a minimum, moderate and comfortable income and what this offered in the way of a lifestyle. Despite these fairly generic brackets it’s clear that the most pressing issue is to consider just how you want your retirement to look, and put in place sensible steps to help ensure dreams can become reality.
When it comes to planning ahead we find it useful to work on the premise of a £1 million pension pot. This figure is a useful one when it comes to pensions – driven by the ‘lifetime allowance’ (the amount which can be held in a pension fund without tax). Although this figure may feel like an incredible amount, saving it is certainly achievable. If you are 25, saving £500 a month with a 5% return would offer a pension pot of £1,013,219 by the time you are 60. If you consider employer contributions and tax relief, the figure you would have to set aside personally can be much less.
General guidance can be a useful starting point. One of the most commonly cited is to set aside half of your age: so if you start at age 30 it could be 15 per cent of your income, whereas if you start at 40 it is 20 per cent.
Yet the stark truth is that today £1 million is probably not enough. And if you are living, working or planning to retire overseas there are additional complexities to consider including currency, taxes and a lack of access to common or occupational pensions schemes to name a few. It’s also likely you’ll have a personal view on where you want to live long-term which will help determine any immigration and other implications.
Ultimately you will have your own ‘magic number’ when it comes to providing for your retirement; one which reflects your unique circumstances, plans and lifestyle, so planning up to and beyond retirement age are both key.
For help and advice on planning for your retirement, please contact us email@example.com.
Jeremy Woodley, CEO