This is just about the most important question that just about everyone asks themselves when it comes to money and retirement. I get asked this question more than any other as a financial adviser and I guess it comes down to one of the basic needs of humanity.
The need for security
After having a roof over your head and food on the table, security is very important for most people.
So a typical question that I get asked is this: I am 47 years, and I want to retire at around age 67 (State Pension Age). How much money will I need to be saving each month so that I have an income of £30,000 a year?
Great question isn’t it? What the question is basically asking is how much I need in savings so that I can retire in relative comfort. So you need an income of £30,000 a year and you want to achieve that goal in 20 years time.
We have the end game information now, but we still need more information to help you work out what needs to be done to achieve your goal.
First of all we need to know how much you have already saved, but let’s keep it simple for now.
To start with, we need to know how much will you receive from the state. Let’s assume this amounts to £10,000 a year, if you are married. So now we know that you have a shortfall of £20,000 a year. So the big question is how much do I need in savings and investments to get to that amount?
If you have no savings, add a zero to your annual desired income and then double it. In other words, to produce £20,000, add a zero, so that’s £200,000 and then double that, which is £400,000.
That is approximately the amount you would need in total investments when you retire. This money can come from a combination of pensions, ISA’s, unit trusts and other assets.
So the really big question is what do I need to do to get £400,000? Let us assume that you have not saved anything so far and you can earn 4% per year after charges and inflation averages 2% a year, you will need to save about £1,630 a month.
Let’s assume for a moment that you increase the contribution each year by 2%, the starting amount you need to invest would need to be about £1,380 a month.
But if you have already saved, say, £100,000, the amount you would need to save reduces to about £745 per month. And if you could delay retiring a few years, the amount you would need to save would be even less.
If you would like to talk to me about getting your plans for retirement on track, please contact me today. Delaying sorting out your exit from working life can be very painful indeed. Better to get your plans in order earlier rather than leave it until it is too late.
Always consult a qualified financial adviser before making any tax or investment decisions. The above article is only for guidance and should not be taken as advice.
Contact Martin Dodd on 01902 742221 or email at [email protected] if you would like talk about money issues.
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