How much do you think you’ll need to save up to retire on?

Audaxer

lisyloo wrote: »

Agree that not everyone can get into 7 figures but people are living longer, so if you can’t then perhaps a 30 year retirement and retiring at 55 is not possible.

While I agree it's important to start early, I think most people could still be able to retire early with a good bit less than a 7 figure pot.

Prism

I started contributing at the age of 22. I had a few years of low payments (£300pa) in my early 30's but otherwise I have contributed about 10% of my gross pay give or take. Most recently I have been able to increase this to about 25% of my pay. I have about 12 years left until I am likely to retire (but that bits flexible at the moment). I hope to have somewhere between 700k to 900k in my pension by retirement.

My wife is working off similar numbers.

Money_Advice_Service

Most people i would imagine would want to save enough into their pension to ensure they have a comfortable life in retirement. It can be a real challenge to know how much income you will need and even a bigger one to work out how much you need to save. One answer is to save what you can afford, maximise any available matching employer contributions and begin saving as early in your working career as possible but this might not necessarily meet your income goals. Auto-enrollment has gone a long way to help encourage those to save into a pension but many have left it to late and the contributions required to reach their desired income goals have simply become unaffordable.

(MAS - Andrew - DipPFS) #talkmoney

TBC15

Money_Advice_Service wrote: »

Most people i would imagine would want to save enough into their pension to ensure they have a comfortable life in retirement. It can be a real challenge to know how much income you will need and even a bigger one to work out how much you need to save. One answer is to save what you can afford, maximise any available matching employer contributions and begin saving as early in your working career as possible but this might not necessarily meet your income goals. Auto-enrollment has gone a long way to help encourage those to save into a pension but many have left it to late and the contributions required to reach their desired income goals have simply become unaffordable.

(MAS - Andrew - DipPFS) #talkmoney

Sounds very sensible. Care to put some figures into the calculations.

Money_Advice_Service

The Money Advice Service has a great retirement calculator where in a few easy steps, it can give you an estimate of the income you'll get when you retire. This will include income from defined benefit and defined contribution schemes, plus either the basic State Pension or the new State Pension, depending on when you were born. You'll also find out if your likely retirement income is less than you need to fund your desired lifestyle in retirement.
https://www.moneyadviceservice.org.uk/en/tools/pension-calculator

Come back and let me know what you think?

(MAS - Andrew - DipPFS) #talkmoney

ex-pat_scot

In an ideal world, we would all be able to estimate our cash flow requirements in each phase of our "retirement".
I did not say "retired"...


I would rather expect that you can (and should) approach this from several angles, to give the "what do I want", "where am i headed", "what do I need to change" and "what can I change" perspectives.


1. "where am i headed?"


This is tricky to calculate, but probably the easiest to actually do.
Based on what I have now, my age, contribution rates, investment strategy, future income patterns, duration.
The easy bits are age (I hope), current contributions and current pot/ entitlement.
Trickier is strategy and estimates for inflation, returns, salary and career progression. Duration also.
This should give us a conversation that reads: "I am 34, I have a £50,000 pot, I contribute £10,000 pa, I anticipate increasing the contribution by inflation / 3% pa with long run 5% return on investment, until I hit 65. That will give me a pot of £750,000". (numbers entirely fictitious!)


2. "what do I want"?


This needs to be tailored to the individual / couple, along the lines of "I would like £3,000 pm net (today's money)". Ideally this should be a ground-up budget but it will likely be very rough indeed.


2a. Am I going to get there?
This is the calculation of how much you need to generate a cash flow in retirement of the £3,000 (or whatever).
This can be done using current annuity rates, or the 4% (or 3.5% or whatever) Safe Withdrawal Rate, or some other calculation of what size pot can generate the required cash flow.


3. what do I need to change?
You can change a number of things:
- duration. Work for longer!
- investment return. Take on more investment risk (if you have the appetite)
- contributions
- cash flow requirement (partial retirement, or retirement income from part time work)


4. What can I change?
Clearly the factors in (3) are all up for grabs, within reason. Assumptions need to be road-tested. (are your early-career salary raises actually sustainable at 10% pa?. Is your investment return assumption of 12% pa realistic?)


5. Where does this leave me?
This tends to be the sobering bit and the essential (but neglected) part.
In my limited anecdotal experience, people can define what a desirable retirement looks like financially and usually in quite modest terms of £2,000 to £3,000 living expenses per month.


However this is not really based on any detailed budget or consideration of risks (eg illhealth, caring responsibilities etc).


I have met very few who can articulate what this would mean in terms of the requirement of a pension pot overall.


Equally few are those who have properly looked at current provision and what it will actually deliver, and whether there is any possibility of achieving those objectives.


I have quiet conversations with many colleagues once I have ascertained that they are interested in the conversation and receptive to challenge. I work with finance professionals and it's very sobering to watch first hand the poor financial choices most make, and the naivety they display.
There's a huge amount of "I contribute what I can afford at the end of each month (ie tiny)" / "I only contribute the lower level for company matching" / "i'll sort it out later in my career when earning big bucks".




The thread topic is the entry into this longer conversation that needs to take place, but so rarely does.
Companies shy away from raising it, for fear of preaching or providing advice (which they cannot do).
Individuals have many pressing financial challenges and this always gets pushed to the back of the queue.


Perhaps one of the worst things that could have happened was the continued house price inflation. That has driven a culture that property is the best asset class; that property owners are somehow investment experts, and that houses will provide an income (or backstop) in retirement so that we need not concentrate on pensions.

Terron

Here is Which's answer


How much income would I need? £1,500pm or £18kpa should be enough. I could get by on less but would have to scrimp. More would of course be nice. Add a bit to cover tax and call it £20k.

Everything is calculated in today's values, looking for investment growth to cover inflation (and hopefully a bit more).

The 4% rule says you need 25 times your target income. It has it flaws but seems a decent first approximation. The state pention would cover many of the
25 times £20k is £500k. That plus a maximum state pention should be enough to cover my needs.



Luckily I have a lot more than that so can afford a bit of luxury.



Note the 4% assumes retirement at 60. You would need more to retire early.

TBC15

Anyone else being blocked/deleted?

TBC15

Come back and let me know what you think?

Love to contribute but my comments keep getting blocked.

Tell me what you would like to hear

lisyloo

Audaxer wrote: »

While I agree it's important to start early, I think most people could still be able to retire early with a good bit less than a 7 figure pot.

I agree, but 6 figure sums are still quite dauting for many.
It depends on what you want to live on and whether you own a property (which is a major plus).
Personally I want to go on holidays several times a year and have money to go out i.e. not planinng to be frugal.
I would see £600K or £24pa or £2K per month as a minimum for a nice lifestyle (don't forget there's income tax to pay on some of that).


Yes I could live on less, it's all a question of what you want and balancing the time/good health you have left which is always difficult because none of us know how long we've got.