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How much do I need to retire at 55?

At Retirement Planning / Pensions

How much pension do I need to retire early?

If you ask yourself, “How much money should I have to retire at 55?” you might be surprised by the answer. Research by Retirement Living Standards gives us a good insight into the long-term costs. If you’re looking for a good pension pot at 55, you need to work out how much you may spend in retirement. The research by Retirement Living Standards is a useful guide.

The 2023 research shows that retired couples need an amount of £59,000 yearly for a comfortable retirement. This drops to £43,000 for moderate lifestyles. Actual values in areas such as London will be higher than this. The research suggests that a single person needs a minimum of £14,000 annually in retirement for a basic lifestyle.

The effect of inflation

The cost of living crisis worries many people. Recent issues with inflation have meant the most recent figures are substantially higher than the previous figures published. For example, a single person’s basic living costs increased from £10,000 to £14,000 just in one year. Although inflation is now lower than 12 months ago, there is still inflationary pressure and increases in the cost of retirement.

Before the recent cost-of-living crisis, we had not seen high inflation since the 1970s. There will be high inflation again at some point, and the impact could be devastating for retirees.

How much money do I need – Is 500k enough to retire at 55?

20X your annual expenditure is wrong.

Some independent financial advisers give a simple multiple of your annual expenditure. They use this to work out how much capital you need. We believe this is flawed and highly inaccurate. It is typical for a married couple to spend at least 25 years in retirement.

Firstly, we need to consider your retirement age. For example, a couple of the same age retiring at 55 have a 70% chance that one of them will still be alive at 85. A simple 20X annual expenditure would not be sufficient. A pension calculator might give you a simple view of your situation, but even these can be inaccurate. Ultimately, how much money you need depends on your personal situation.

How much do I need to retire at 55?

“So if your annual expenditure is £30,000, then £600,000 would not be enough.”

In addition to life expectancy, you also need to consider inflation. The idea of living off the same level of income each year is not realistic. In retirement, you need to consider the cost of living. This is especially important through periods of high inflation. The risk of retirement longevity should also be a concern.

Ultimately the amount of capital you need to retire on will vary from person to person. We take this into account.

  • Current and future income
  • Future pension contributions
  • Expenditure and inflation
  • The investment returns you require
  • Your anticipated life expectancy
  • Your current and future income tax position.

How do we calculate how much you need?

Initially, we look at current income and expenditure and then factor in known changes. This could be a reduction in income (for example, if you want to retire before the UK state pension age).

Expenditure is also reviewed, and any changes will be factored in. We take into account any one-off expenses. This could include future costs, such as changing your car or gifts to children.

We can then calculate the difference between your retirement income and your expenses. Once we know if there is a shortfall, our software can calculate where to take your income from.

Our software is called cash flow software. It is different because it is based on historical returns and inflation. This gives us a better and more accurate picture of your retirement.

We will consider pensions, investments, and any other income-producing assets. We would exclude your main home. Assets can be split into three types.

Any savings, investments, cash, or property (Including your primary residence or second home). These assets are used to generate an income that can be used for retirement.

There is a school of thought that you can withdraw 4% of your capital each year without losing money. The reality is that the calculations are much more complex.

A report in (November 2021) by MorningStar called “The state of retirement Income” updated the 4% rule.

“Investors and Retirees should in the future withdraw only 3.3% of their capital each year. This  ensures they do not run out of money.”

If you plan to retire, the value of these assets is vitally important. Most Retirees do not want to run out of money, so getting the level of income you need should be accurate. For most people, maintaining their standard of living in retirement is important.

Any asset that generates income for you. This might include Savings, rental property, and income-producing investments. We would also consider retirement savings, workplace pensions, and private pensions. Again, the 3.3% withdrawal rule should apply. However, with pensions, you could take a higher level. If you do this, the value of your pensions might reduce.

Your pensions will depend on the type of pension you might have. This could be a final salary, private pensions or an employer-based pension scheme.  The available pension options include flexi access drawdown (income drawdown), ufpls, or buying a pension annuity.

Your investments can be reviewed to generate an income for you.

Any income generated should be as tax-efficient as possible. The aim is to make sure you pay as little tax as possible.

State Pension age and benefits

Currently, the UK state pension age is 66. This is due to an increase in the retirement age of 67. This is due to the increases in life expectancy. Of course, retiring early could mean you will likely have to make additional pension contributions. Pension contributions benefit from tax relief. They are still one of the best ways to save for retirement.

What are my options concerning pensions?

When you are able to retire, if you have pension benefits it depends on the type of scheme you have. If you have private or workplace pensions then you will have pension options. The video below gives you a good idea of the options you have.

Pension Options explained by Consilium Asset Management

How much capital does the average person retire with at 55?

Many factors are involved in knowing how much capital is needed if you are 55 and retired. An average figure would not do the question justice. It depends on the individual’s specific scenario. The amount of capital needed to retire would be their yearly expenditure multiplied by the years they have left to live. However, you need to account for inflation, interest rates, investment returns, inheritance, and other sources of income. No two situations will be the same.

The ultimate aim for retirees is to maintain their lifestyle in retirement.  To answer the original question, we will use the value of £30,600 per year for a couple living moderately. We assume they live to age 90. This is 35 years so that it would total £1,071,000. Of course, this is shared between two people. It shows how much is needed to sustain a reasonable lifestyle in retirement.

How do I ensure I don’t run out of money when I retire?

This is a complicated one. It isn’t easy to work out unless you have the best software. Our retirement planning software measures how successful your retirement planning will be. It gives us a success score out of 100. The higher the number, the more likely you are to succeed.

Retirement Planning with a Difference

However, our software tracks the value of your pensions and investments daily, constantly updating your success score. If we notice a significant drop in your success score, we will notify you. We can then review your pensions and investments. This way, you can be assured that your plan is on track and you should not run out of money.

We believe there is only one way to do this. Advisors must be committed to using the latest technology.

Retirement Planning Review

how much do i need to retire at 55Our retirement planning review service is the first step to helping you into retirement. We recommend it if you want to consider retirement at 55. At the initial meeting, we will gather your information to input into our cash flow planning software. This will then give us an idea if retirement at 55 is possible. If not, we can consider alternative assumptions, for example, retiring at 60. We aim to help you with your retirement plan.

If you want to find out how to retire early, contact us. Retirement Planning is a complicated subject, and we recommend speaking to an appropriately qualified Retirement Advisor.

How to book your free review

To book your free retirement planning review with us, click the button below or click here. The initial meeting is free. However, our service is designed for clients with at least £250,000 in pensions and savings.

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