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How Much Should You Be Saving for Retirement?

How Much Should You Be Saving For Retirement?

How much money have you saved for your retirement? It’s hard to think about it while we’re still working, but it’s a question that must be asked. Most of us are saving in a pension or investment scheme, yet aren’t sure what the right amount is. On top of this, the average life expectancy is rising, making it difficult for us to know how much income we’ll need should our retired life be longer than expected.

This confusion is leading to widespread confusion and problems. According to figures released by the Government in a study of its flagship workplace pension scheme, 4 in 10 of us are underestimating how much we need to set aside. Half of under-savers are earning at least £34,500 a year. This means that around 6 million middle-class workers are going to experience a drop in their standard of living when they retire due to a dramatically decreased income. This week, we’re walking you through how much you’ll need to save to make sure you’re comfortable in your retirement.

Working out how much you’ll need

It’s always worth starting your planning with the basics. Trying to roughly calculate how much your retirement outgoings are will give you the best guide for your ideal income.

A great place to start is with your mortgage. As one of the most consistent costs we all face, you’ll be able to judge this amount easily. If you’re close to paying off your mortgage or have even paid it off, this will lower the amount you’ll need to save for retirement.

The Office for National Statistics says that the average annual food spend is £2,808, while gas and electricity works out at around £1,253. These numbers will also rise with inflation.

After this, you’ll need to take your lifestyle into account. If you’re the type of person who will want to spend their retirement on holidays, taking up new hobbies or enjoying meals out, you’ll increase the amount you’ll need to save. Careful saving now can lead to more comfort and adventures in retirement!

On top of this, you’ll need to take practical concerns into account. If your partner is relying on your pension, you’ll need to save more. Should you decide to downsize house, you could find yourself having more free money. As some events are unpredictable, you’ll want to leave yourself with some flexibility should dramatic changes occur.

Taking your money as an annual income

The amount of income you should be receiving each year is a debatable topic and is reliant on factors including how much you earn, where you live and how much of your mortgage is left to pay. As a general rule, most experts agree that it should be around two-thirds of your final Salary. If you, for example, finished work on an annual salary of £30,000, you should be aiming for an annual retirement income of £20,000.

According to an analysis by the Department for Work and Pensions, if you are on £13,000 or less, you should be aiming to have around 80% of your salary in old age. This equates to around £10,400 per year. On the other end of the spectrum, if your final wage is more than £55,000, you’re recommended to save for an annual income of 50% your final salary. This works out at around £27,500.

Your situation depends entirely on personal factors, meaning it is best to get tailored advice. This can be done by contacting a professional financial advisor for guidance.

Is a lump sum better?

If an annual salary isn’t for you, there is also the option to take a Lump Sum. To do this, you’ll need to set aside a lump sum that is approximately 10 times your final salary. For example, if you end your career making £32,000, your lump sum should ideally be valued at £320,000. This amount, along with interest, is advised to see you through old age.

These savings can be done through a pensions scheme, in a personal savings account, such as an ISA, or achieved through investments.

Both a lump sum and an annual salary are good options for retirement. Whatever you choose to do should be suited to you. Its best that you choose the method you feel most comfortable with to give you peace of mind in retirement.

Saving money for your pension can be daunting, but is important. With careful planning, you’ll be able to achieve a comfortable and relaxing retirement.

This post first appeared on Prestige Tax And Trust Services Blog | Discussing, please read the originial post: here

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How Much Should You Be Saving for Retirement?


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