Finance
By Ann Haldon
How Much Money Will You Need For Your Retirement?
There’s a general consensus that to live comfortably in retirement, you need a pension of at least £20,000 a year. Where you live obviously makes a difference, but in general, people’s idea of what constitutes a ‘comfortable’ retirement also differs. So, if like many people you’re unsure how much you’ll need in retirement, how can you find out? Focus on your expenditure initially Rather than obtaining pension statements and forecasts first, it’s a good idea to calculate how much you’ll need for the essentials in retirement, taking into account what your circumstances might be in the future rather than now. If you pay your bills by direct debit, have a look at your bank statements for regular household outgoings such as mortgage, utilities, council tax and house insurance. Then you can factor in the cost of emergency repairs such as boiler or car breakdowns. The total is the sum you’ll need to cover using a guaranteed income. Pension forecasts and statements Once you’ve calculated your expenditure, you can obtain a state pension forecast from the gov.uk website. Work and personal pension statements should be available by phone or in writing from your pension provider(s), and there are also a number of online ‘pension calculators’ that give you an idea of how much you might receive. What expenses will you save in retirement? • If you’re currently supporting your family or making mortgage repayments, these expenses may not be relevant once you retire. Not having to commute to work is also a significant costsaving for some.
• Many people choose to downsize their property in retirement – if this is on the cards for you, it would release a lump sum of cash to pay off any debts you have remaining, invest for an income, or to pay future house maintenance costs, for example. So now you’ve got all the figures you need, how do you access your pension pot when the time comes? Pension freedoms The pension reforms that were introduced in April 2015 give you much greater choice in the way you access your pension pot. Prior to this, an annuity had to be purchased which provided a guaranteed income for life. Although this option remains available and is commonly used, it’s no longer the only one. With professional pension advice, you can maximise your pension savings whilst also ensuring you avoid the significant pension pitfalls that now exist. Pension mistakes that could jeopardise your retirement Could you outlive your pension savings? It’s possible that you could outlive your pension savings if you take out too much money too early. It’s crucial to seek professional help on the most tax-efficient ways to access your pension, so you don’t risk reducing its value unnecessarily. Beware pension scams One of the downsides of the new pension freedoms is that con artists have been able to swindle people out of their hard-earned pensions. Scams such as those offering tax-free transfers to dubious investment schemes, or suggested legal ‘loopholes’ that allow you to avoid paying tax, have been widespread in recent years. So essentially, there are three factors when it comes to thinking about money in retirement: • How much money you’ll need to live on each month. • How you’re going to achieve this level of income. • How you’ll manage your money. With the help of pension professionals, and the facts and figures at your fingertips, hopefully you’ll make the most of your long-awaited retired life. www.which.co.uk/money/pensions-andretirement/starting-to-plan-your-retirement/ guides/how-much-will-you-need-to-retire www.gov.uk/check-state-pension
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