It’s only natural to daydream about a retirement filled with expensive hobbies and sun-soaked holidays abroad. But have you really considered how much you will need to save to make this vision a reality?
With living costs and life expectancy rising concurrently, it’s becoming even more difficult for people to predict how much they will need.
Here we discuss some of the factors you should consider when saving for retirement.
At what age do you plan to retire?
To make sure you’re being mindful with your money in retirement, you should first plan how long you need your cash to last.
While this might sound easy enough, not everyone retires as soon as they reach the State Pension age (currently set at 66 years). In fact, our Retirement Reality Report found that, actually, only 30 per cent of people expect to retire between the ages of 66 and 69, and a whopping 59 per cent plan to do so before the new State Retirement age.
To ensure you’re not ‘caught short’ in retirement, it’s important to consider the minimum number of years you can expect to rely on your financial provision. For instance, if you are a woman who plans to retire at 68, you should put aside enough money so that you can live comfortably for an absolute minimum of 14 years (the average life expectancy is 82.9 years for women and 79.2 years for men).
What kind of lifestyle do you want?
To plan appropriately for your retirement, you should first budget based on the lifestyle you to plan to enjoy and not just the income you currently earn.
We say this because, according to our research, many people who aspire to an expensive lifestyle in retirement don’t have the financial means to support their vision. This is further emphasised by the large proportion of people who want to enjoy world travel and expensive hobbies in retirement while relying solely on the State Pension. In truth, reality could look very different.
After all, the average holiday alone is thought to cost around £1,200-1,300 per person (after expenses are added). This would mean foregoing at least 15 per cent of the total State Pension if there is no other financial provision in place.
Therefore, to fully appreciate how much you will need in retirement, you first need to be realistic about what provision you have and what sort of lifestyle you aspire to. One rule of thumb says you should multiply your desired income by 25 to see how much you will need for retirement. For example, if you want to withdraw £30,000 per year from your retirement portfolio, the ‘Rule of 25’ says you need £750,000 in your retirement portfolio (£30,000 x 25 equals £750,000).
When should I start saving for retirement?
While there’s no one-size-fits-all approach to saving for retirement, naturally it makes more sense to start sooner rather than later.
Reassuringly, we found that around one-quarter of the population start saving for retirement in their 20s and 30s – at least three decades before they’re due to retire. The reason? Quite simply, relying on the State Pension isn’t conducive to a stress-free retirement.
To bridge the gap, many people (65%) are making monthly contributions to their workplace pension, while others regularly put away extra savings (46%). Whichever method (or methods) you choose, by starting early you will give yourself the greatest chance of having the retirement you want.
Are there other ways to save money for retirement?
For many people, putting away a sizeable percentage of their monthly income each month just isn’t viable.
That’s why more and more over 55s are choosing equity release. This gives homeowners the opportunity to unlock money from their property without needing to move or downsize.
There are typically no monthly repayments to make and you continue to own and live in your home until you die or move into permanent care. Only then is your plan normally repaid from the sale of your property.
To find out more about equity release or to speak to a financial adviser, get in touch with the Equity Release Supermarket team on Freephone 0800 802 1051, or email firstname.lastname@example.org.
To see how the nation is planning for retirement, download a copy of our Retirement Reality Report.