Whether retirement is many years away or just around the corner, unless we start planning for retirement now, there is a great danger that we could outlive our savings. The golden rule is to determine exactly how much you are going to need in retirement – and to start planning for it now. The stark reality is that the majority of us need to save more. With people living to a greater age, retirement can now last longer than the time we spend working. We all must accumulate more when we are earning to meet the extra costs of living longer. The decisions we make today will dictate the standard of living we will enjoy in retirement. And beware the cost of delay. The earlier you make a start, the easier it will be to create the retirement lifestyle you want. You need to commit to a plan, and take action.
How much will I need?
Your life in retirement is likely to be very different from your working one, both personally and financially. You will probably have lower outgoings. Any children will most likely have left home, and most of your long-term debts like the mortgage will probably have been cleared. You do need to take into account, however, that you might want to spend more on leisure activities like holidays, travelling and hobbies. And you may choose semi-retirement, maintaining some level of employment while you are still happy to work. Making a calculation for your retirement fund is entirely personal, but the following examples may prove instructive:
Let’s assume you are 40 and you want an annual retirement income of £30,000 when you retire at 65. As a rule of thumb you should apply a multiple of 25 to the £30,000, and consequently you are going to need a retirement fund of £750,000 to help achieve the desired level of income in retirement. When you work out how much income you need in retirement, remember to allow for inflation.
When should I start saving?
The longer you leave it to take action, the more expensive it will be to catch up. Take the following example. Assume you start saving for retirement at the age of 40, and invest £500 a month. If you delayed by five years, and started at the age of 45 instead, you would need to invest 43% more a month. These figures assume a retirement age of 65 and are for illustration purposes only. They are examples and are not guaranteed and are not minimum or maximum amounts. What you get back will depend on how your investment grows and the tax treatment of the investment. You could get back more or less than this.
No one likes to face up to the fact that they are getting older and that retirement is fast approaching. There are other ways of generating income for retirement – buy-to-let, downsizing, etc. – yet it is essential that you are putting sufficient sums away to secure an adequate retirement income, now. Over the past few years, retirement planning has not been at the forefront of everybody’s minds, particularly with changing market conditions, so if you have not sought professional advice beforehand, it is essential you do so now. Speaking to a wealth management professional can give you peace of mind and ensure you are on the right track to a prosperous retirement, no matter what stage of life you are at.
About St. James’s Place
St. James’s Place Wealth Management is a leading company in the expanding wealth management market. We are a FTSE 100 business with funds under management amounting to over £65.6 billion. We specialise in meeting the financial needs of people who have created significant capital, or who earn higher incomes, and whose circumstances are therefore more complicated than most.
Want to learn more? Discover the 3 vital stages for successful wealth management or the 5 principles to guide long term financial security.