how to retire successfully

Retiring Successfully in the Current Climate



Posted on: 24th July 2020

With many changes and challenges facing the world, it comes as no surprise that many hard-working individuals have asked themselves the question of if it is the time to retire and how to retire successfully.

Many overestimate the cost of living on retirement believing they need an equivalent of their previous wage to maintain the same lifestyle, but how much will you really require and how much would you need to save in advance to receive that income?

The Cost of Retirement

The costs of retirement can vary by region, with London and the South East being a much higher percentage than average. State pensions provides a very basic level of income which does not cover retirement’s full costs so people tend to plan out their retirement months if not years in advance

The thought of retirement can be frightening but after the initial worries things start to settle down and you begin to accept that you don’t have the level of expense you had previously.

What Can You Expect to Spend in Retirement

On average, households have been documented on spending around 27k a year to cover basic areas of expense and small luxuries such as holidays and hobby interests.

If you look into more exotic luxuries such as new cars every few years or long-distance travel on a more regular basis then you may need a bracket akin to 42k a year.

In retirement years you may decide to spend more time travelling which is deemed a very important vocation in later years with an estimated 5k spent a year. As tastes and involvement in certain activities do change in later years such as the lower need for recreation such as gyms or nights out; and less payments on housing costs you find that these areas open up more savings. However, you will find yourself spending more than previously on areas such as insurance premiums and utilities.

The Pension Pot

Just how much money will you require for your pension pot?

Breaking it into a few sections makes it easier to assemble a full picture of how to build it up. Upon reaching your retirement age, which is currently 65 for both males and females, a sizable chunk of the retirement funds will be supplied by the government at a rate of £268.50 a week for couples which equates to a little under £14k a year. This amount is halfway towards the annual income level.

Defined benefits and final salary pensions pay a regular monthly income based on earnings whilst working which when added to your state pension gives a clear indication on how much you have in retirement to work with.

You can invest pension contributions into a big pot through a defined contribution and can take the entire pot in one go, but you run the risk of paying a substantial tax payment. If you opt for an income drawdown or an annuity in taking money from your pot, you will need around £298,000 in order to receive 27k a year income post-tax guaranteed with an annuity.

The same amount can be achieved with an income drawdown but the figure needed would be around £215k assuming savings grow by as little as 3% annually.

Starting in Ages

For comfortable living in retirement, you need to start as early as possible to reduce the amount you will put in.

Starting retirement pensions in your 40’s can mean contributing close to £500 a month to achieve comfortable retirement years. Beginning as early as your mid-20s is a much more affordable option than leaving your retirement plans until your twilight years are rapidly approaching.

It need not be as scary as it seems with the advice and help of independent financial advisors Manchester such as Haven IFA that specialise in aiding people of all ages in setting up their future.