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What is your magic number (to retire on)?

How much money do I need to retire?” is quite possibly the most common question I am asked by clients. Need? What exactly does “need” mean? By “need” do people mean the bare essentials such as heating, council tax and beans on toast on the table?  Or does “need” mean more than that? “Everyone will have a different definition of need in retirement, but the key point is that beginning this planning phase is some of the most important work we do”, says Akwasi Duodu of Sterling & Law Independent Financial Consultants.

Let me take you through a little thought exercise to get you thinking about how much you might need. Before you do so, try and visualise retirement. You’ll have stopped working. You’ll have a lot more time to kill. And when do you spend money the most? When you have time. Bear this in mind – some people call retirement “the longest holiday of your life”.

Step 1

Think about your current lifestyle. Would you like to maintain your current lifestyle or do you think you would need more money?  Or less? Make a decision. Now choose an income based in today’s money that you would need.

Step 2

Take this income (or combined income if married) and take off mortgage expenses, school fees, pension contributions, life insurance contributions and any other expenses you think you would have shaken off at your chosen retirement age.

Step 3

Now multiply the income by 20 for a rough estimate on the pension pot that you would need to comfortably afford your desired income per year with minimal risk. In other words, 5% of that pension pot withdrawn per year would be the amount you would live on.

You now have your “magic number”.

This is the target goal of assets that you are aiming to have accumulated before you retire. Think about this number. If you think it is achievable and important, write it down. Put it up on the wall at home. This number becomes your retirement planning goal. If you don’t think it’s achievable, then it’s back to the drawing board. If you don’t think it’s important, stop reading now!

Final step

Take a look at your current pensions and savings. Include any let property income. Will you downsize from your home? Factor this in and total it all up. How does this compare to your magic number? Are you on the right track to retire on the income you need? Is there a shortfall? If so, what do you think would be the best course of action to take?


The above exercise is not as sophisticated as the detailed assessments we do for our clients, but it is based on the same core principles and should help you to start thinking about your journey to retirement. Every journey not only begins with a single step, but a single thought. Hopefully, if you’re off track, this will make you feel a little uncomfortable and make you want to do some retirement planning.

How much money would you need to retire? And what if we changed the word “need” to “want”? What difference would that make? Time perhaps to do some thinking. Don’t leave it until time has ran out.

Article by Adam Walkom, Independent Financial Consultant, Sterling & Law Group plc.

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