How often do you think about your future? Have you put anything into position to make your retirement that little bit easier? With that said, at what stage do you actually want to retire? Do you have plans for your twilight years? Do you want to leave anything behind once you're gone? For loved ones, children, grandchildren, maybe even great grandchildren? It is never too early to start thinking about your retirement. Ask yourself how much pension do I need to live the life I want to. Let's look at how much you might need as we look ahead to those years of retirement.
Money For Retirement
When you finish work, you'll still need money to live on. Whilst you won't have a monthly income from a salary, if you have planned ahead for your retirement, you should be able to access the funds you've put away. Without having to commute to work, perhaps without children still living at home, maybe even downsizing your property and being mortgage free, you need to figure how how much you'll need for your financial situation. Everyone is different and there is no set rule in place for this. Many people worry that they wont be able to save the amount they spend every month.
However, when you start thinking about things like maybe not needing two cars, you start to see how much you'll really need for your retirement. It is thought that between half and two third of what you usually earn per year, is what you'll need. So those households with two people bringing in a combined £30,000 a year, will need somewhere between £15,000 and £20,000. If you retreat the age of 65 and you consider the average UK death is 82 years old, that's 17 years to plan for. £15k each year for 17 years is £255,000. Your situation will likely be different so it's worth looking at what you spend, when you want to retire and for how long you wish to plan.
What Do Retired People Spend Money On?
When you start thinking about how much pension do I need, you might consider what retired people spend money on. Even though you retire, you'll have plenty of things to pay for, all without a salary coming in from working. Think about this list of things you'll likely have to pay for. Groceries, insurance, household goods, utilities, clothing and housing payments including council tax. You might have to pay for things to do with your health, especially if it starts to deteriorate.
Then there is travel, including car payments for getting around and maybe even travelling on holiday and enjoying trips to different parts of the world. You might consider getting a new car every few years, which will need budgeting for. You might want to dine out more, treat your extended family, join leisure club. Maybe people who retire have different ideals of what they wish to get up to. Come modest, some extremely luxurious.
How Much Pension Do I Need?
Now comes the question. How much pension do I need? You need to think about your financial situation and your future plans. If you were born after 6 April 1978, your state pension age will be 68. That means, if you've been paying your national insurance contributions, you'll be able to get your state pension from when you turn 68. This changes for different people depending on when they are born so it's worth checking from what age you can get your state pension from.
In order to get any state pension, you'll need a minimum of 10 qualifying years. For the full state pension, you'll need 35 qualifying years. At time of writing this, the state pension is £134.25 each week. If there are two of you, that's £268.50 per week. £1074 every four weeks. £13,962 over a year. If that is not enough for you to live on, you'll need to start paying into a private pension. This could be through a scheme at work, or maybe one you set up yourself.
Start Planning Early
Did you know that the earlier you start planning for retirement, the less you'll need to put away each month? In order to have a comfortable time during your retired years, you need to build up the amount of money that you desire. The earlier you start, the less you'll need to save every month.
It could be £40 a month if you start when you are 20. However if you leave it until you are 50 to start planning for your retirement, it could be up to £400+ a month you need to start putting aside. You might not notice £40 a month, especially if you budget for it. You will probably notice £400+ a month. The 20 year old will already have 30 years of savings habits when they arrive at their 50th birthday. So they're already in that mindset and the money they've saved has had time to build up and earn more. The earlier you plan, the easier it feels to save towards your retirement.
As you can see, the earlier you start thinking about your retirement, the less you need to put away each month in order to save what you'll need. Some of us will have a simple retirement, pottering around the garden, spending time with friends and family. Others will have lavish and luxurious retirements with lots of travel and bi annual cruises. Depending on the lifestyle you want to live in your retirement, the amount you need to save will differ.
Remember, you'll likely not have children at home, commuting to work and even a mortgage to pay for. When you take many of those things off the table you'll realise you have a lot more money to use, even if you don't save a lot. Figure out what you want to do with your retirement, where you want to go, what you want to leave for loved ones. You'll then have to answer to how much pension do I need. Happy saving and even happier retirement!