What size pension pot do I need?
Retirement is referred to as “the longest holiday of your life”. Early retirement sounds excellent, but putting the right plans in place is essential.
Our clients ask questions such as
- “What is a good pension pot at 60?”
- “How much do I need to retire at 60?”
This is a question at the forefront of people’s minds. A recent study was carried out for those over 50. It showed that 69% worry about running out of money in retirement. The ability to maintain income in retirement was most important.
Most people under-estimate the amount of Income they require.
It is vital to have the retirement lifestyle you want. Whilst maintaining your standard of living. Everyone wants to have a comfortable retirement.
Why compromise your standard of living just because you are retiring?
Knowing your retirement plans are possible will give you more comfort.
If anything, your spending will most likely increase, and this is because you have more confidence in your retirement plan.
Financial planning is crucial for all periods of your life. But none more so than in the years leading up to and following retirement.
Identifying your goals and objectives is imperative. It is vital to make sure your retirement plans are valid.
It is essential to review your retirement plans each year. Making sure you are on course for the retirement you desire.
We aim to help you determine the level of pensions and investments you need. The actual amount varies for each person. Let’s look at two examples to demonstrate this:
- Client 1 is 53 and looking to retire early at 55. They have an annual income of over £100,000 for most of their career, and they have gotten used to the comfortable lifestyle they want to maintain. Their mother is unwell and requires long-term care, which Client 1 pays for.
- Client 2 is 62 and looking to retire at age 65. They are on a modest income of £40,000 per year and lead a simple but happy life. They have two grown-up children.
Both will require a different income level each year, and the total they need to save for retirement will be different.
There are many factors that determine how much is enough for you to retire. These include:
- Estimated expenditure
- Longevity
- State pension eligibility
- Other sources of income
- Dependents and legacy
- Investment strategy
Understanding each of these factors and combining them to find your magic number is very difficult. Especially when there are variables such as:
- Inflation
- Investment growth
- Interest rates
- Taxation laws
- Unexpected changes in your situation
Building a retirement plan
The first stage is to analyse how much income you will need in the first year. We will then use the six factors listed to project forward your income requirements.
We can then work out if you have enough money to retire on. If you are on track, that is great. We can then review the plan every year.
If changes are needed, we will work with you to find the gaps. You can then consider the changes you need to make.
Estimate Expenditure
As mentioned above, one of the factors is your estimated expenditure. You can start crunching the numbers using our interactive expenditure form. Fill in how much you spend for each category.
You can then send the form to us. We then add these figures into our software to help develop your plan.
Longevity
We believe it is wise to plan for the worst-case scenario. Many events in life can change your plans.
For Example – Living longer than you expect. Whilst this is good, it will affect your plans.
The longer you live, the more money you initially need to save. If you have a family history of longevity, we will factor this in.
That is why we go further than using ONS Life Expectancies. We use assumptions based on your current age and state of health, and we review your plan each year to consider any changes.
State Pension Income
For most people relying just on their basic state pension would be difficult. However, the basic state pension is a valuable income each month.
Knowing your state pension age and the amount you will receive is vital. You can find out when and the amount you will receive from the government’s Website. You may need to set up a username and password to get the information.
Other sources of income
It is common to have income in retirement from more than one source. This could include personal pensions or workplace pensions. You might have a final salary or defined contribution pension.
Working part-time is an option if you want to retire partially.
You could withdraw money from tax-free ISA Accounts or have rental income.
No matter your situation, we will take everything into account. This ensures our forecasts about your plans for retirement are as accurate as possible. This way, we can ensure no surprises further down the line.
Dependents and Legacy
We all have loved ones that we will one day leave behind. Most of us would like to make sure our family receive some inheritance. Passing money through the generations is one thing we concentrate on. This could be for your children or grandchildren.
We will take this into account when we develop your plan. Similarly, if you would rather spend everything, we can calculate that too.
Investment Strategy
We can build your current investment strategy into your plan. Our software will use actual investment returns from the past 100 years, and it estimates your potential investment growth. This applies to the entire life of your plan.
This task is challenging to do. Therefore, you will see a variety of possible outcomes. The outcomes are grouped into four categories: likely, rare, best, and worst. In the middle, you will see your median outcome, which is the most likely.
We can do that if you want to review your investment strategy. Our investment review service is extensive and involves a complete analysis of your risk profile, including your attitude to risk and your views on sustainable investing.
We will compare alternative portfolios to your existing strategy and work with you to find the perfect match for your plan.
What does a retirement plan look like?
We believe clients should have a clear idea of their retirement plans.
That’s why we provide graphs and figures that relate to your everyday life. Our retirement Service makes it easier to understand the best options.
Cash Flow Planning report
This will detail the information that you have provided to us. It includes any goals or large one-off expenditures. You can then review this and advise us of any changes.
It will give you your plan success rate. Multiple simulations are used to calculate the percentage success rate.
Within the Cash flow planning, there is a section on tax planning.
The cash flow charts show assets, liabilities, and income over time.
Scroll through the images below to see examples of these important outputs.
Annual Suitability Review
Each year as your financial planner we will sit down with you and review your income. At this point, we can update your plan and make adjustments.
We take into account any significant changes that have or will occur. We will also review your attitude to risk if required.
The FCA also require us to review your capacity for loss. This is the ability for you to absorb investment losses. Losses that affect your standard of living need to be reviewed.
The review’s vital aspect is your Sustainable Spending Rate, and we use this rather than a Sustainable Withdrawal Rate.
Sustainable Withdrawal Rates only refer to pension drawdown. This is how much you can take from your pension and not run out of money.
We believe it is better to look at your entire situation.
Most people have multiple sources of income that they can use. It is essential to figure out how much you can afford to SPEND.
Each year we can calculate Your Sustainable Rate of Spending.
This tells you how much you can afford to spend each year. We then convert this to a success rate for your plan.
If we recommend changes, they will be personal to your situation. We have produced a blog post on our Income Sustainability process.
Summary
We know that retirement is not an easy time. The adjustment from full-time work to retirement is a significant change.
Our Retirement Planning service puts you back in control. With our help, you can feel in control and at ease.
Finally, retirement is about enjoying the later years of your life. Money should not be a limiting factor in this, but an enabler. We will make sure your plan allows all your dreams to come true.
Get in touch with our financial advisor to book your initial consultation. We can then discuss how we can help you.
