If you’re thinking about retirement, the golden questions we get asked when someone walks through the door are, “Do I have enough?” “Will I have enough?” and “How much?”
So let’s take a look;
How much do I need to retire?
Well, it's more than a jar full of pennies, but it is (usually) less than winning the lottery.
Your Needs & Lifestyle
The starting point is you and your lifestyle, and what that may look like in retirement.
Consider your expenditure:
The non-negotiables: mortgage, debts, bills - anything that needs paying
The fun stuff: holidays, travel, hobbies - anything that you enjoy doing
So obviously, the first thing is working out what bills are there to pay, including, of course, any debts or mortgages. We account for those first.
The second step is the much more fulfilling part: working out what kind of retiree you are.
What Kind of Retiree Are You?
Imagine your ideal retirement, or what I like to ask my clients who are approaching retirement (and don’t work shifts), what is your ideal Saturday & Sunday?
From the minute you wake up to the minute you go to bed – consider every detail and think about your options.
Here are a few to get you thinking:
Option A: Sipping a coconut drink on a beach with endless sunshine? 🌴
Option B: Travelling in your brand new campervan? 🌍
Option C: Kicking back in a cosy home, spoiling the grandkids and seeing to the garden? 👨👩👦
This is what matters most to us, what gives us meaning and connection and ultimately what shapes our lives.
Then the less exciting part - how much do you think this will cost?
Working out how much you anticipate spending on things you enjoy is the key to a happy retirement.
Understand The Numbers: The 4% Rule Explained
So you have worked out what your ideal income is.
You now need to see which fund can give you that over your retirement.
Let’s talk numbers without putting you to sleep.
There's a handy rule called the 4% Rule. Basically, it suggests you can safely withdraw 4% of your retirement savings each year to cover your expenses—without running out of cash.
However, life isn’t as simple as that. Often in your earlier years of retirement, you will be more active, need more money and will therefore spend more.
This is why we use cash flow modelling to determine what is a safe number to take from your retirement pot.
Let's look at it a different way: You are 55, want to retire, and you could live for the next 30 years.
If you work out your annual income multiplied by 30, you can determine what fund value you need.
For example, you will need a personal pension fund with a value of £720,000 to provide £24,000 per annum.
Now again, this assumes that you live 30 years, when in reality that number could vary.
There are a lot of variables you need to consider with your retirement planning, but this can be a good way to get a rough idea.
The Power of Saving and Compound Interest
Now that figure may seem scary for some, but this is where:
1) Early saving
2) Investing in the best companies of the world (equities)
3) Compound interest
4) Financial Guidance
All comes into play.
So what is Compound Interest?
Think of it like a snowball rolling down a hill, getting bigger and bigger.
The earlier you start saving, the more time your money has to grow.
But hey, if you’re not 30 anymore, don’t worry! There are always innovative ways to catch up.
The key is starting now—the best time to plant a tree was 20 years ago, but the second-best time is today!
Be Realistic But Dream Big!
Everyone’s magic number is different.
Maybe it’s £500,000, maybe £2 million.
The point is, it’s your dream and your retirement. And guess what? The best way to reach that goal is to create a plan and stick to it throughout your journey.
After all, your future self will thank you for it.
So if you need a chat about your retirement planning for clarity and comfort from an honest human adviser, give us a call on 0191 380 4106.
Really consider and think about your life and what you want out of retirement because that’s what we care about—your fulfilment and enjoyment at that stage of life.
Comments