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Retire at 55. How much capital do I need?

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Retire at 55

What is a good monthly income if I retire at 55?

Are you looking towards retirement at 55? To work out how much you may spend in retirement, the research by ‘Retirement Living Standards’ is a useful guide. 

The research shows that retired couples need an amount to retire at 55 of £50,000 each year to have a comfortable retirement. This drops to £30,600 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 £10,900 per year in retirement for a basic lifestyle.

The effect of inflation

The cost of living crisis is a worry for many people. The Bank of England anticipates inflation to be 13.3% by the end of 2022.

We have not seen inflation at this level since the 1970s. The impact could be devastating for retirees.

We have estimated the increases for 2022 on top of the retirement living standards figures. A couple looking for a comfortable retirement could face a £6400 increase in 2022. This is an extra £538 per month. The table below shows the estimates for 2022.

Retirement living standards

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How much capital do I need?

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 bear in mind your retirement age. For example, a couple of the same age retiring at 55 have a 70% chance that one of them 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 to retire at 55 depends on your own personal situation. 

Estimated life expectancy for a couple that retire at age 55

Survival probability

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

As well as 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 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

Is it possible for me to retire at age 55?

Initially, we look at the current income and expenditure. We then factor in known changes. This could be a reduction in income(for example, if you want to retire at 55 UK).

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.

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

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

Capital Growth Assets

Any Savings, Investments, Cash or property (Excluding your main 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, these assets’ value is vitally important. Most Retirees do not want to run out of money. Getting the level of income you need should be accurate. For most people maintaining your standard of living in retirement is important.

Income Producing Assets

Any asset that generates an income for you. This might include Savings, rental property, income producing investments. We would also consider retirement savings, workplace pensions and well as 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.

With your pensions it will depend on the type of pension you might have. This could be final salary, private pensions or an employer based pension scheme.  The pension options available to you could include flexi access drawdown(also known as income drawdown), ufpls or to buy 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. It is due to increase to a retirement age of 67. This is due to the increases in life expectancy. Of course retiring early could mean you are likely to have to make additional pension contributions. Pension contributions benefit from tax relief. They are still one of the best ways to save for retirement. 

Income and Growth Assets

Any assets where the aim is to produce an income as well as capital growth.

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.

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

Many factors are involved with knowing how much capital is needed for retirement at age 55. An average figure would not do the question justice. It depends on the individual’s specific scenario. The amount of capital needed to retire at 55 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. As well as 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 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 your plan is to succeed.

Retirement Planning with a difference

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

Book your free retirement meeting

Reviewing your plan after your retirement

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

Retirement Planning Review

Our retirement planning review service is the first step to helping you into retirement. If you want to retire at 55, we recommend our review service. At the initial meeting, we will gather information from you 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. Our aim is to help you with your retirement plan.  

Still want to retire at 55? We can help you

If you want to find out how to retire early, get in touch with us. Retirement Planning is a complicated subject. We recommend speaking to an appropriately qualified Retirement Advisor.

Retirement Help Sheet

You might find the enclosed help sheet useful. 

You can download a copy below

Retire at 55 Helpsheet

Retire at 55

How to book your free review

To book your free retirement planning review with us, you only need to click the button below or click here. There is no cost for the initial meeting. However, our service is designed for clients with at least £250,000 of pensions and savings.


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Important Information

This article is not intended to be financial advice. It is important to consult a professional when considering Investing. The value of investments can change, and it is possible to lose money.