TODAY’S BLOG

HOW MUCH FOR A HAPPY RETIREMENT?

Doubtless your will have heard of Which? Magazine. They conducted a survey recently in an attempt to understand how much is really enough for people to have a comfortable retirement. They concluded that a two-person household needs an average annual income of £26,000 for a comfortable retirement.

However you have coped with the pandemic, many people have not been able to spend money in the way they normally would. Many have saved the sums that would have been spent on holidays, travel, commuting, work clothes, weekday lunches, meals out and so on. This has given many of us the opportunity to pause for thought and reflect on how much we spend and the lifestyles we lead.

Some people have elected to retire earlier than they had planned, some have had this forced upon them. In practice, the warning signs for higher unemployment have been around for some time. We shall all begin to see the reality of things once the lockdown ends properly and the furlough system comes to an end. I do not see this going well. I implied, no… I stated that the Budget in March worked on the assumption of unemployment rising by 500,000 over the next 2 years with the largest increase in the current 2021/22 tax year.

A BREAD & BUTTER LIFESTYLE

£26,000 OR £19,000

Anyway, many have been giving thought to how much income they are likely to need when they stop earning. In February, Which? asked around 7,000 retirees about their spending.

The findings can be used as a guide to how much people are likely to spend and how much they might need to save, factoring in the state pension and tax bills. Couples need a pot of around £155,000 alongside their state pension to produce the annual income for a comfortable retirement of £26,000 via pension drawdown – or just over £265,000 through a joint-life annuity. Two-person households would need around £442,000 in a drawdown plan to fund the luxury retirement target (£41,000 per year) – or £589,000 if they’ve taken the full 25% tax-free lump sum available at the outset. If you opt for the guaranteed income provided by a joint-life annuity, you’ll require an initial fund of around £757,000.

For single-person households, achieving a comfortable retirement would mean a pot of around £192,290 alongside the state pension to get to an annual income of £19,000 via pension drawdown, or £305,710 through an annuity. For a retirement at the ‘essential’ level, single-person households would need £77,350 in a pension drawdown or £123,365 to buy an annuity plan to meet an annual target income of £13,000. A couple receiving the current average amount of £155 each per week will get just over £16,000 a year to add to private pensions. Pension drawdown figures are based on the savers withdrawing all of their income over 20 years from the age of 65, with investment growth of 3%, inflation at 1% and charges levied at 0.75%.

TWADDLE – THAT THING ABOUT ASSUMPTIONS

So let me respond by clearly saying “twaddle!” but it’s a helpful guide.That is all it is, there are huge holes in the assumptions and thinking, for starters, assuming a 2 decade retirement. Life rarely happens so “neatly”.

Over the years our processes have evolved with the technology that is available. We stress test your financial plan each week. Considering the likelihood of your life expectancy to the tenth percentile… which means the 1 in 10 chance you live a really long time. We consider sustainable income levels that fluctuate with inflation and changing investment returns based upon historical facts rather than regulatory unicorn utopias.

In any event, why would you care about a survey where your lifestyle is dictated? Surely your financial plan should be about protecting and ensuring that your current lifestyle endures as long as you do…. Or do you want less?

That’s why it is important, no – why its vital to have your own plan, based on sensible assumptions that we review together. Unless you have some mind-blowing news for me, you get one life and the clock is ticking. So have your own plan, know what you want and check with us that you are on track.

Need help? Know someone that does? get in touch... share the truth. It won’t hurt.

Its Your Lifestyle: how much is enough?

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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