Whether you’re dreaming of travelling the world and riding off into the sunset, or are looking forward to embracing the simple life closer to home, you’ll need to ensure you’ve got enough money saved into your pension to support yourself when you retire.
How long your pension lasts will depend on a range of factors, from your desired income to how much you’ve got saved and your life expectancy. Here’s what you’ll need to consider when doing your calculations.
Your desired retirement income
The amount of money you need to have a comfortable retirement will very much depend on your personal circumstances and the standard of living you’d like to have. If, for example, you currently earn £50,000 a year, it would be quite a shock to the system to drop down to £10,000 a year in retirement – especially if you don’t intend to adjust your lifestyle or reduce your outgoings.
How much should you save for a good retirement? We explain it all in under 2 minutes 🌈 For more handy video guides, why not check your YouTube channel! https://t.co/RBopUiMb7M Capital at risk. pic.twitter.com/DUn6fZRORf— PensionBee (@pensionbee) 4 April 2018
Earlier this year Which? conducted a study and found that the average couple needs just £18,000 between them to live for a year. This amount covers the bare essentials like food, accommodation and transport and would be just about doable if both parties were receiving the new State Pension amount of £8,546.20 each a year.
A slightly more comfortable retirement, that includes modest luxuries like European holidays, would require £26,000. A luxurious retirement, with long-haul holidays and a brand new car every five years, would cost a couple £39,000 a year.
How much you’ve already saved into your pension
To ensure you’re saving enough money to comfortably support yourself for your whole retirement you’ll need to have a good understanding of your current pension balances and your expected retirement income.
Depending on the type of pension you have, you can check your balance by looking at your annual pension statement, or by logging into your online pension account. With either option you’ll be able to find out how much your pension is worth today and how much you can expect it to pay out at your expected retirement date.
If you have your retirement savings spread across multiple pensions, you may want to consider transferring them into one. That way you’ll have just one pension to manage and will always be able to get a clear view of not only your balance, but how your investments are performing. When you transfer your pensions into one you can also go through the steps of looking for any old pensions you might have forgotten about. This can help ensure that any pensions you’ve previously started with an old employer are brought together and can’t be misplaced or lost in future.
Your life expectancy
Last year research from the Office for National Statistics (ONS), found that an average 65-year-old could be expected to live for another 22.8 years, giving them an average life expectancy of approximately 87 years. At the moment you can start withdrawing your personal, workplace and private pensions from the age of 55, although this is expected to rise to 57 by 2028. The current State Pension age is 66, although this is rising too and will be 67 by 2028.
Over-55s face retirement income 30% smaller than needed https://t.co/2L3e4dx5QI— FTAdviser (@FTAdviser) 18 October 2018
If you decide to stop working and cash in your personal, workplace and private pensions at 55, by the ONS’ calculations, the average person would need to have enough money saved to last them 33 years. In this scenario, your State Pension wouldn’t kick in for at least 10 years after that so you wouldn’t be able to rely on that topping up your income straightaway.
It might sound obvious, but 33 years is a long time to live off your retirement savings, if you don’t plan to have any other income from property or a part-time job, for example. This is why it’s crucial to start thinking about the kind of retirement you want to have from a young age, at a stage in your life when you can feasibly save a little bit of money often, rather than having to sacrifice more of your wages later on.
Putting a pension saving plan in place
To prevent a shortfall in later life you’ll need to ensure you’re saving enough money for your retirement. A pension calculator can help you work out how long your average pension pot will last and how much more you’ll need to save in order to achieve your desired income for the duration of your retirement.
To use the PensionBee retirement calculator, just tell us the amount of money you’ve saved so far and your level of contributions, and we’ll show you whether you’re on track to save enough to reach your desired retirement income, or whether you’ll need to increase your contributions. Our pension pot calculator can also help you decide how much money to pay into your pension moving forwards by showing you the impact that increasing your contributions could have on your retirement income.
When you sign up to PensionBee we’ll help you take control of your pension saving, giving you access to your online pension 24/7. You can adjust your contributions and see how your pension’s performing in just a few clicks. Existing customers can download our app in the iTunes and Google Play stores, and use it to access their real time pension balance with PensionBee.
As always with investments, with a pension your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.