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How much money will I need to retire?

The question we often come across when talking to a new customer is ‘how much money will I need to retire on’?  Most people would agree that a lottery winning of a million would be very nice indeed. Some would however argue that a million wasn’t anywhere near enough.

Of course, it depends. The amount of money that would be enough to simply get by would be very different from the amount of money required to live a grand lifestyle. So, I’ve tried to break the question down into various components below.

How much money do you need for your desired retirement?

We have broken this article down into four easy-to-understand sections:

  1. Getting by in retirement
  2. Being comfortable
  3. Having a financially abundant retirement
  4. Leaving an inheritance

Everyone has a different outlook on life. Some like to spend for the now and throw financial caution to the wind. Others like to take a balanced approach. And others? Well, the looming prospect of retiring in 45 years means battening down the financial hatches in their 20’s.

Getting by in retirement

If all you are interested in is getting by in retirement, you would simply need a little more money available than your monthly expenditure each month. A surplus would of course be welcome for unforeseen emergencies and it would be prudent to build a savings reserve of around three month’s expenses.

But how satisfying would a lifestyle like that be?

You couldn’t be blamed for feeling a little hard done by, especially as we tend to spend the most money when we have the time to do so, and most people have a lot of time in retirement!

Related reading:

Being comfortable in retirement

Let’s assume that the definition of a comfortable retirement is the ability to feel financially secure, that your state of mind would be free from financial stress and that you were able to afford everything you needed and most of the things you wanted. How much money would be enough to enable you to enjoy this state of well-being?

Well, the numbers themselves are less important than you would think. This is because many people with good incomes in retirement could find themselves merely getting by due to a high-maintenance lifestyle.

To be comfortable, what you may need is to have income well in excess of your expenditure, with some savings to act as a buffer for emergencies.

Having a financially abundant retirement

Retirement is the act of ceasing to work. Which is what you do – albeit temporarily – when you take a holiday. Retirement may therefore be interpreted as the longest holiday of your life. What would that look like for you and how much money would be enough to sustain you?

Well, using today’s annuity rates (this is an income you would receive each month in exchange for your pension pot, payable for the rest of your life), you’d need a pot large enough to pay you your required income at approximately 4.5% from age 65. In other words, if you required an income of £36,000 per annum in retirement, you would probably need a pension pot of around £800,000. To help you understand just how much money you need to retire on to live an abundant lifestyle, why not have a look at this retirement income calculator?

This is a significant amount of money and why it is important to take retirement planning seriously.  Start building your pension pot at as early an age as possible.

Related services:

If this article has made you think about your retirement plans, we are here to help. At Sterling & Law, we have two specific retirement-focused services which are:

Should you wish to call us now, please do so on 020 3740 5856

Leaving an inheritance

The further property prices rise, inheritance tax (IHT) is becoming a problem for more families and individuals. In addition to the worry of having enough to live comfortably in retirement, most of us would like to leave something to our loved ones when we die.

Income from pensions would be all yours, however, assets such as property and savings could be ring-fenced and left to your loved ones. Of course, IHT could make a significant dent in whatever you left behind, so getting inheritance tax advice and planning for it would be essential, especially if you have significant wealth.

How much money will you need to retire – summary

As you can see, there is a lot to consider. It’s not just about asking yourself, ‘how much will I need to retire on?’ It’s more about the retirement you want and the lifestyle you desire.

If you just want to get by, downsize your home, and live frugally in later life you’ll need less money to retire than if you want to see the world or buy that Superbike. On the other hand, some of us want to be able be build up some wealth to pass on to future generations. On that basis, it’s more about investing wisely for the long term, in a tax-efficient way.

How much money do you need to retire?

Simply put, that’s for you to decide. And, the team at Sterling & Law is always here to help.

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