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The vast majority of Britons have no clear idea of how much money they will need in retirement. Most also don’t have a goal and don’t know at what age they would like to retire. Yet a surprisingly large number of Britons believe they are “probably going to be fine” with a pension pot of around £355,000, according to financial planning and investment firm Sanlam Wealthsmiths.
For most Britons, however, this amount will be far from sufficient.
How much money do you need?
A pension pot of £355,000 equates to an annual income of just £13,000. That’s actually lower than the average UK pension, which provides £15,080 a year. And that’s far less than the amount Britons say they need per year in retirement, which stands at £34,000 a year. To reach that amount, the repo pots would need to be closer to £1m.
Why don’t the numbers add up? In other words, most people are unwilling to do the math. Others are unwilling to make early decisions that would impact that number.
Why is age important?
Until 2028, people can still access their pot from age 55 (it will increase to 57 in 2028). But the earlier you retire, the more money you’ll need in your retirement fund if your goal is to stop working altogether. Someone who retires at 55 and lives to be 81.2 (the average life expectancy in the UK) has many years ahead of them that need to be covered by a pension.
According to the Pension and Lifetime Savings Association, those looking to retire at 55 will need £20,200 a year for a moderate lifestyle and £33,000 a year for a comfortable lifestyle. This will require a pension pot well over £355,000.
On the other hand, Unbiased points out that spending £40,000 a year (which wouldn’t be so hard to do if you wanted to travel or tackle big post-retirement repair jobs) would mean you’d need a pot pension of £650,000 instead. That’s almost double what the average Brit thinks they need to retire.
How much money will you have in retirement?
If you’re not sure how much money you’ll receive when you retire, places like MoneyHelper have pension calculators. Remember that these calculators will give you a forecast of the likely retirement income you will receive when you retire. Figures are not exact and may change if your contributions change along the way.
How to increase your retirement fund?
The easiest way to increase your pension is to put more money into it. You can take advantage of any salary increases to contribute more to your pension or contribute to a private pension. Or you can ask your employer if they will match your contributions.
You should also consider consolidating your pensions from different employers to save on fees. But, more importantly, you need to set a retirement income goal. Knowing how much money you want and need in retirement will help you plan better. If you are behind with your government pension kitty, you can also turn to investments or private pensions to make up the difference.