Enough money to retire?..How do I know??

ipri

Seems a simple enough question...but not so easy to answer...Is there a simple formula / calculation? Thanks Ian

ben500

It's easy check your bank balance calculate how long it will last you and make a suicide pact with your cat!

If you are overdrawn you can sit back in the confidence you are already living on borrowed time! And have thus far budgeted exceedingly well.

EdInvestor

Hi ipri

It's not cheap

For instance, take the state pension of c.4,300 quid a year, going up with inflation and guaranteed for life.

To buy this income on the annuity market would cost you just under 83k if you were a 65 year old man and 93k if you were a 65 year old woman.

That's excluding any spouse's pension - which the state pension provides - when you die.

Current annuity rates

Conrad

ipri wrote:

Seems a simple enough question...but not so easy to answer...Is there a simple formula / calculation? Thanks Ian

Im not sure what you are asking, but Im assuming you want to know how much money you will need to retire on? Thats a question only you can answer.

Say you want to retire on £1000 per week TAKE HOME. THis means your gross weekly income would need to be about £1500, which is £80000 pa.

To generate this income you will require a lump sum (fund) of £1.6million and could expect to receive about 5% yield (income) invested across gilts / cash and perhaps very safe bonds. Might be less might be more, but 5% works for me.

The next step (if you are just planning to save) is to work out how much you need to invest each month to reach this sum. I work on the basis that I will get 3x back the amount invested as long as you plan to save for at least 15 years. If you plan to save for 25 years or more I assume a return of 4 x the sum invested. Having said this one of my investments, a Unit Trust with Framlington Health fund, returned 50x the amount invested between 1981 and 1999.

Taking the 25 year scenario; £1.6m divided by 4, means you have to save £400000 in todays money (obviously it is best to increase the amount you save each year to keep pace with inflation). So as a starting point you would need to invest £307 per week.

Having said all this most employed people currently receive 2 state pensions of about £100 per week total, which is equivalent to holding a £100000 fund, so you can afford to deduct this from your calculations.

hobbesandco

There's a really good calculator on the guardian's website:

http://money.guardian.co.uk/calculator/form/0,1456,603163,00.html

You can enter in your current salary, % of savings to salary, number of years before retirement, number of years you will need to live on savings (estimated of course) and shows you how much you will need to save.