Today I’m going to be helping you to answer the question that I spend my days answering for my financial planning clients. People who are thinking about retirement come to me with one main question – ‘Do I have enough?’
Working out your retirement number is always a moving feast. The variables change and there are lots of moving parts.
But it’s ADDICTIVE! Working towards this ultimate goal is exciting, challenging, sometimes disheartening, but always worthwhile.
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01:07 1 – Types of Pension
03:47 2 – Free Money with Pensions
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11:20 Summary
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Retirement is an important milestone in everyone’s life, and it requires careful planning and savings to make sure we have enough when the time comes. However, one of the most common questions when it comes to retirement planning is how much money is enough?
The answer, of course, is not a simple one as it largely depends on each individual’s lifestyle, expectations, and expenses. There are several factors that determine how much retirement savings a person needs, and it can be helpful to consider them when working out a retirement plan.
First, consider your current expenses. According to financial experts, a good starting point is to work out the expenses you have today and whether you expect them to increase, decrease or stay the same after retirement. This includes everything from housing costs, healthcare expenses, food, transportation, and entertainment.
The next factor is your retirement income. The amount of income you will have during retirement plays a crucial role in determining how much you need to save. This income can come from various sources such as social security, pension plans, and personal savings. For instance, if you have a pension plan in place, you may require a smaller nest egg than someone who doesn’t have one.
The third factor is your expected lifespan. While it’s impossible to predict how long you will live, experts suggest that you should plan for a longer life expectancy. This means you’ll need more savings to ensure that you can maintain your standard of living over the years.
Lastly, you need to take inflation into account. Inflation is the rate at which prices of goods and services rise over time. According to financial experts, it’s important to factor in inflation when planning for retirement as it can significantly impact your retirement savings. For instance, if the expected inflation rate is 3%, you’ll need about 50% more money to maintain the same standard of living in 20 years.
All of these factors together will determine how much money you’ll need to retire comfortably. However, experts suggest that most people would require at least 70% of their pre-retirement income to sustain their lifestyle in retirement. For instance, if you’re earning $100,000 per year before retiring, you’ll require $70,000 annually to maintain the same lifestyle.
It’s important to note that this is just a general guideline, and everyone’s situation is different. While some may require more savings to retire comfortably, others may need less. The best way to determine your needs is to consult with a financial planner who can assess your unique situation and provide you with retirement planning strategies.
In conclusion, determining how much money one needs to retire comfortably is a complex process that requires careful consideration of several factors. It’s important to start planning early, devise a strategy, and consistently save & invest strategically to ensure a worry-free retirement.
Im 45 in a few months have 116k in company and private pensions pay combined £449 a month into it inc tax relief my state pension age is 67 currently so i have 23 yrs to retirement i was looking at 25k a yr income with state and private pension combined what ideally do i need in the pot ball part figure to not have to work in retirement , i intend to put payrise in to my pension as i dont want to pay extra child maintenance and when my mortgauge comes down i will put 50 % in to the pension pot each month .
Luckily I am so called working class, and have enough in pension funds to support myself and my immediate family. Most genuine working class people are not concerned owning a Rolex watch, but rather existing without bs luxury that matters not.
Still trying to figure out if you are genuinely trying to help, or just profiting.
it appears I require an additional 215k (without including state pension) to retire at the right age. May have to delay a little lol
Are you going to stop working when you reach retirement age?
Enough ??? , spend less ..you will never have enough..just stop working , spend less and live on what you have …London too expensive ! Then move to the Philippines , rent your house out & rent a place in the new place ….
If you're mortgage free and have a work pension you're doing ok .
Peter, thank you for your videos.
£275,000 is not enough. Inflation will destroy that overtime. In 25 years £275,000 in todays money will probably worth £70,000 in 25 years.
I have a company DB pension and receive the full U.K. state pension. I also have a SIPP which I can vary the income I receive from it. The biggest issue is the tax threshold if I go above a certain amount I get taxed at 40% instead of 20% so even if I wanted to work effectively I would lose nearly half my salary in tax. This is s massive dis-incentive biggest issue people forget about when retiring is tax. Although you do stop paying NI contributions which is a bonus
I have enough money to live an extravagant lifestyle for as long as I live.
Provided I die by the end of the month…..
I am just about to retire and getting serious about what to do with my various pensions. A bit late I know, but there is something that almost no one seems to take into consideration: One off large expenditures that can hit you after retirement. Examples could be replacing your car, central heating boiler, or house roof. It can be very difficult to deal with these events when you have a fixed income.
The only way that we know your fund can last (you must work to infinity because you don't know when you are going to die) is if your fund is accruing more than the (in this example) £11k per year, we are drawing out.
Good Video – thanks. Of course, one thing we old codgers didn't factor in was the increased cost of energy. Once retired, you will spend at least 50% more time at home. You either fork out or freeze! Great! And I won't mention my Stakeholder pension with Scottish Widows. Lost 15% this year, 10% last year and they still charge me a 0.8% "management" fee! I simply can't afford to take it, hoping it will make something in the years to come. Not sure if I'll last that long! Luckily I have the state pension and a DB pension so I am not on the bread line.
Hopefully there is no morg when you retire so to me what you spend now minus the morg.
nice video, if I get 1M I am out for holiday 🙂
This guy has a calculator. This means he is good with money.
And make sure your life partner has a good provision; if self employed and especially if you are a higher rate tax payer, paying him or her and investing on their behalf can give very good returns.
Make sure you have state pension full entitlement (buying extra years can be a good deal if it ensures you hit 35 years – after that no more benefit). Then occupational pension; nearly always a very good idea; then Lifetime ISA (if under 40); then personal pension fund investment (or property if you think you will be able to avoid voids, and cope with future taxation levels). Rent a room scheme- with the right tenant- can be very helpful if things are tight. Finally don’t forget a bit of ongoing work if you are capable, can enjoy it, and can fit it in to your busy retired life.
Is your state pension dependent on your income in the UK? In Australia we don't get the State pension once our income is over a certain limit.
Question can I use my LISA to buy my first house and then keep paying to use it for my retirement? So withdraw it for ex next year to buy my home to 0 and then do it over again for my pension?
Is this calculation from aged 60 or 67? Aged 60 you'd have no access to State Pension and DB pension would be reduced.
Horseshit how many ordinary working people can afford a rental property this channel should be named “Only the rich need watch “
Of course in this example we need more than £275k if we're 40 and wanting to retire at 60, because we won't get the state pension until about 68. The defined benefit company pension might start slightly earlier, but unlikely to start much earlier unless you can take early retirement, at least without actuarial reduction.
The Twingo just got cool, I think your Yaris makes the list. And personally speaking I think seeing that you own that car makes me have much more trust in you. Odd huh.
Hi Pete, just discovered your channel – it’s great! Just trying to work out my own number. As a teacher, I’ll be in receipt of a DB pension. If I take it sooner then the amount per year goes down. Therefore I was thinking of retiring at 60 but not taking the teachers pension until 68. Does that sound like a sensible option? How would that effect the calculation? Many thanks!
The answer is simple. 2 million dollars
A mention also for the other benefit of planning, starting off like this. It’s not just about “how much” or “when”. With a very well thought out model, we can start to get a feel for “how”, and cash flows. By which I mean many people struggle with work suddenly ending, income cliff edges, or wealth when state pensions mature (if lucky enough to have a private one earlier). It’s possible to plan eg moving to 4 then 3 days a week – if employer supported – when you know how this effects lifestyle, savings, pensions accrual. What about taking an early pension with a small penalty, if affordable. Using lump sums to tide the gap until state pensions. Using lump sums to buy NI years if missing etc etc.
It offers a degree of control knowing not only when one can retire, but how one can transition into retirement seemlessly*
*noting I know that in life, anything can happen and change everything in an instant – but that fact doesn’t invalidate the premise and benefits of having a plan.
A few observations on a great vid.
Personally I don’t like risk and am happy with having final salary pensions (x2, with my wife). That’s a major unknown sorted for me. Pay off house (aim to never have to sell it, and let that be my gift to my daughter eventually).
Secondly, I see that most reviews focus on the individual not the couple. Often throws peoples calculations off a lot. I base things on OUR expense and joint income. I know if circumstances change, I’d have to look at my income and any inheritance and assume my outgoings (alone) are more like 66% than 50% as couples have the benefit of being more economical.
Finally, just to note my bug bear. The LISA investment has an OK interest rate then also has the “25%” bonus but that’s a bit misleading. As cash can’t be touched and takes a decade to mature (final input age 50, matures age 60) then at best interest is about 2% per year, compounded towards 25%. It’s not really all that great. I think too much emphasis is placed on this option. It’s better for first time buyers who can save for as short as they want and grab a bonus whenever.
All depends on where you live, whether or not you own your home, and what you consider "comfortable".
Great video, thank you. My circumstances are different to most people's and because of my circumstances I won't be retiring at 66. I would love to chat with you, at your convenience.
0:28 it's a cool car in that is not tying you down to huge overheads and stressing your finances. I know people who drive "cool" cars buy spending more than 100% of their disposable income on it. That then tell themselves they are living the dream.
Excellent advice
I feel like crying…I have been saving a modest amount for years in a workplace pension…making a contribution..salary sacrifice and my employer paid too…left my pension in the scheme…just got my pension statement..in none year my pension pot has dropped substantially..I feel sick.
This man is excellent
Watched so many of these videos…
Thank you, wish I learnt this stuff I’m school!
My husband is sceptical of the safety of pensions and schemes given the ever changing rules, ideas, schemes and laws of a messy selfish government…
This video is so amazing and Am really glad I found this for I learned a lot of useful things in here regarding the best amount of money to retire comfortably . Thanks a lot for sharing this to us.
Well if you move your pensions to PensionBee like I did in 2021, you'll have nothing to retire on as they have decimated mine by a fortune, any advice on how to report them to see if I can get compensated for it. They are abysmal to be quite honest.
Thanks Pete, been following you for a while but circumstances are just changing for me, i already have a Royal Naval pension which is paying out and the company i work for i have a pension which is part DB and part DC (been with them 17 years). For several of those years i have applied additional voluntary contributions to my DC part to build additional investment for retirement. Following a grade change my salary is about to increase and looking at whether its better to up my DC contributions and take the benefits of the tax allowance through the company or whether its better not to keep all my eggs in one basket and look to invest elsewhere. I am 57 so not that far way from retirement so its only a matter of time and wondered if there was longevity in time to make an alternate investment an option?
As someone 7 yrs into retirement now (July 2022) my biggest worry is the cost of heating my home. If you're a young person it may be sensible to include provision for unforseen pressures such as we're heading into this Winter within your retirement income plan.
Hi Pete, just started watching you. Thanks for great & and helpful videos. Apologies if you've been asked this before. Could you say as a guide to having enough pension what percentage that is to what we currently earn? Seems an easier way to gauge as we currently manage that finite figure.