confused!!!

radcliffe78

I'm trying to work out how much I need to save to live comfortably

I'm 37 want to retire at 60,i currently earn 28,000 a year

dunstonh

How much do you want to live on in retirement in todays terms?
What growth rate reflects the type of investments you have (or will use)
How much existing provision?

Those are the key things initially that you need to do a crude calculation of what you need to put aside.

bigadaj

radcliffe78 wrote: »

I'm trying to work out how much I need to save to live comfortably

I'm 37 want to retire at 60,i currently earn 28,000 a year

There are plenty of calculators on the websites of insurers and platforms so you feed in what you can afford, put in and assumed growth rate and come out with an answer.

One simple way of looking at this is that you are saying you want to retire in 23 years, and your life expectancy from sixty will be a similar amount. Of that you can assume a state pension from around 68, and it's generally easier to work out everything in today's money ignoring inflation. So you would need 8 years at £20000, and then maybe 15 years at £12000.

Index linked annuities at age 60 would only pay around 3%, so your looking at a pot if well over £500000 at 60. There will be investment growth but assuming your starting from scratch, and saying half the value would be growth, that would suggest you would need to be contributing over £10000 per year.

That's a very crude estimate but gives an idea of what you need to put in to retire early, and also shows the true value of final salary or defined benefit pensions.

Linton

Do you think you live comfortably now? If so, work out how much you are actually spending on average in a year after taking off the things that you wont be spending money on in retirement - eg mortgage, pension payments, children. Take off £7500 for SP. Multiply what's left by 25-30, add 25% for tax and that's very roughly the pot you need to have accumulated at current prices.

To get from the required pot size to how much to save each year requires an assumption about average returns. Each £1000/year increasing by inflation for 22 years will give you £41000 at current prices if investments return 5%+ inflation/year or £31000 at 3%.

You will then need to add some more to cover the period before you get your State Pension.

On the assumption of 5% return above inflation your current investments will triple in value by the time you retire.

So you know:
a) Your required pot size at 60 at current prices
b) The value at 60 of your current pension savings
c) Subtract one from t'other which gives the extra you need.
d) divide by 41 will give the the £K gross you need to save each year.