Everyone has a dream of how their future days will be. Knowing the amount of money, you need for retirement is not a very easy task as there are so many factors to consider. For example, you need to think about the inflation rates, retirement age, investment gains, tax charges, marital status and your life expectancy. The few years before you retire can be filled with anxiety and uncertainty. You might not be sure if you have enough savings or how much you need to finance your desired lifestyle.
However, the amount of money you need to retire is dependent on:
- The amount you can afford to save
- The duration you will save
- How much you need as pension
Planning For Your Pension
If you begin saving for retirement early in your career, it may not be straightforward to predict the exact amount you need for retirement. At this stage, save as much as you can afford but don’t panic if it is not as much as you would want. It is better to keep a small portion of your income that will grow for a long time.
On the other hand, if you start saving later in your career, you will have a clear understanding of how your future will be. For example, at this stage, you are likely to have finished paying your mortgage loans or have a family – You can get more information on this at the NowLoan website. It will be simple to estimate the amount of income you require as a pension, but you will not have a lot of time to save it. However, lenders in the UK have come up with flexible loan packages for the elderly.
The levels of Living standards For Pensioners
The pension and Lifetime Savings Association has categorized living standards into three categories; minimum, moderate and comfortable.
To have a minimum living standard, you’ll need an annual income of approximately £10,200 and about £15,700 for couples. The money would be enough for basic, but you will not be able to cover the cost of running a car or travelling abroad for a holiday.
For the medium level, you would require an income of about £20,200 and £29100 for couples. At least you can be able to afford running a new car and can comfortably go for one holiday in Europe per year.
At the comfortable level, one person you would require to have about £33,000 and approximately £47,500 annually for couples. Here you can afford a lavish lifestyle for your retirement. You can run a new or even replace it regularly and travel abroad for an extended period.
How much do you need to accumulate?
You can use the ‘multiply by 25’ rule where you can multiply the income your desire annually by 25 to get to the approximate amount you need to save. For example, if you desire to have an income of £ 50000 per year, you will need to save a total of £1,250,000. However, this rule does not consider inflation and income tax. Also, some experts, while taking into account inflation and tax, argue that you may require a higher amount than this.
Whether you require £12,50, 000, £300,000 or £100,000, to retire peacefully, you need to save a considerable amount of money. The earlier you save, the better. Also, try to pay for any loan before you retire.
Calculate for yourself how much money you need
So, in order to give you a more detailed idea of how much money you need to save to retire, we will introduce some of the amounts of money you need to be able to live a basic, average or luxury retirement life.
For example, one survey covered groceries, housing payments, health, insurance, transportation, new clothes, household goods, etc. as things that all people spend money on. According to this survey, one senior citizen spends £2,193 on groceries, £2,603 on housing payments, £1,058 for health, £1,696 for shipping, and £699 on buying new clothes. For couples, the amounts of money are as follows: £3,948 on groceries, £2,369 for insurance, £3,132 for housing payments, £1,346 for health, £1,013 for buying new clothes.
So, these are some basic things, and by budget, for a basic lifestyle. Of course, if we add the money for traveling, recreation, hobbies, car maintenance, etc. to these numbers, there is no doubt that the final amount is significantly higher. However, if you want a basic standard of living, then these are probably the numbers that can lead you to the final conclusion about how much money you need to retire.
How to Fill Your Pension Pot?
Now that you can approximately figure out how much money you will need, we need to say something about how you can secure income when you retire. Namely, we will talk about money purchase pension and state pension.
When it comes to state pension, you simply need to qualify for this type of pension income. The basic requirement is that you must be 65 years old, whether you are male or female. In the UK it is the same for both. There are also some other factors that we will not talk about now because they depend on the particular case.
The UK state pension is currently £268.50 per week, but we must mention that this is the pre-tax amount as well as that it applies to a couple, therefore both man and woman. After tax, the sum of money is £175.20, but there is one more thing to note which is that some may receive less than this amount, because as we said, it is an individual case. When it comes to individual income, the state pension is £160.18 per week for a man. When it comes to women, the weekly income is £152.55.
As for the money purchase pension, this method is actually your contribution or better said investment for a big pot. After you have retired, it is up to you to decide how you want to earn an investment-based return. There are two ways to do this, to get all your money at once, or to choose an annuity, which is essentially a better option. If you take all the money, then you will undoubtedly incur high tax expense. That is why annuity is a much better way to accomplish this.