How much is enough to afford my retirement lifestyle?Back
Do you think about the sort of lifestyle you’d like to live once you retire? We’d all like to spend more time with our family, on our favourite pastimes or maybe travelling, but have you considered where you want to live and in what level of comfort?
Will you need transport to see family members? How do you want to be looked after when you’re elderly? There’s a lot to think about concerning retirement and the biggest question - one that many people ignore or leave until the last moment - is how much do you need in your retirement pot to fund that lifestyle?
It seems a difficult question to answer, with so many variables involved; who knows what the state of your health will be or whether a child will need help to buy a home. But I’m a passionate believer in tackling the question earlier rather than later, for two main reasons:
- You may need to take action now to afford the lifestyle you desire when you retire.
- If you have enough money in your pot now then why, unless you have the best job in the world, are you still in the office instead of ticking off your bucket list or spending time with your loved ones?
I strongly believe that the question isn’t impossible to answer and the sooner you start thinking about it, the better.
What questions do I need to ask?
Here are some key questions I like to ask my clients to help them begin defining an answer, encouraging them to look at where they are now and where they want to be in 10, 20- or 30-years’ time:
- What kind of lifestyle do you want in the future? Do you see yourself sailing your own yacht on the high seas or gardening in a picture-perfect country cottage? Do you intend to remain in your much-loved current home enjoying visits from grandchildren or will you emigrate? My definition of “rich” is having enough money to live as extravagantly or modestly as you wish.
- What will be your day to day living costs? Will you be mortgage free? Will you need health care? Will you live abroad? Will you still need to commute?
- Do you anticipate any large bills? Retirement doesn’t mean withdrawing from life. Are you going to support children through university or paying for a wedding? Do you have an elderly relative who will need full-time care?
- How much do you currently earn? It’s been suggested that to maintain your standard of living in retirement you will need approximately one half to two thirds of the salary earned before retirement*. However, in our experience everyone is different and its often a lot more!
- When do you want to retire? The longer you intend to live without a work income the larger the pot you’ll need to ensure you can maintain the standard of living you dream of. Your retirement date also determines how much time you still have to grow your retirement pot.
Will I have too little or too much?
Knowing whether you have enough money for the future is not the same as knowing how much you have in your pension pot. Pensions are one strategy for building for the future (see our article Provision for Income in Retirement) but there are different ways you can build and accumulate enough money and possible opportunities to save money by reducing outgoings.
Also, note that we’re talking about having “enough”. Ensuring you have an adequate amount to fund your lifestyle is important but, believe it or not, having too much can be a problem too, especially where the taxman and inheritance is concerned. You want to leave your family a legacy, not a burden.
Taking the next step
By asking yourself these key questions about the style and quality of life you wish to enjoy, and being realistic about where you are now, will help you understand what you need to do today.
Rather than being daunted, you might find it really exciting to answer the question “How much is enough?” and to start taking deliberate steps towards what’s really meaningful in your life.
Now you’ve started asking the question, you may need help from a Financial Adviser to fine tune your sums and take the necessary actions to ensure you reach your financial goals by retirement.
In my view, a Financial Adviser who doesn’t ask you what lifestyle you want to enjoy when you retire is just selling you products. What’s the point of planning when you have no destination in mind?
Holborn Financial is a Chartered Financial Planning Consultancy based in Wimbledon, South West London, though we have clients nationwide.
Our approach throughout the 25 years we’ve been in business has always been to help clients put the financial planning in place to live their desired retirement lifestyle. Our team of highly qualified and experienced specialists are dedicated to helping our clients to achieve that goal.
If you would like to learn more about this, or would like expert advice on tax, investment and planning opportunities, please contact our specialist team of experts.
* Daily Telegraph article: “How much do I need to retire?” 18 January 2018.
This Briefing Note is provided for information purposes only and does not constitute any form of financial or investment advice. We believe the information to be correct at the time of going to press but we cannot accept any responsibility for any loss to any person as a result of action or refraining from action as a result of any item herein.
Printed and published by ©Holborn Financial Limited authorised & regulated by the Financial Conduct Authority. July 2019