Forget all the headlines about pension black holes or impending financial doom and gloom to concentrate instead on how to take out your retirement savings through your later years.
The argument is not about have you enough money to finance your dreams but a formula that helps make that money last for up to 30 years.
With longer life expectancy, many over 50s can expect to l
ive in to their 80s – and beyond for women.
How much you need to fund those years depends on personal circumstances and expectations.
Anyone who wants to spend their retirement on a perpetual world cruise obviously needs a larger retirement pot than someone with more modest aspirations.
The trick is balancing that expectation with hard cash – sending yourself a monthly reality cheque, if you like.
To work out the amount to write the cheque for, take your retirement pot and pay yourself 4% of the total every year.
So, an average pension fund on retirement of around £30,000 would pay £1,200 a year over 30 years or so.
That’s just £100 a month or the princely sum of £23 a week.
With inflation running at the Bank of England’s target figure of 2%, the figure is adjusted to take account of the rising cost of living – by £24 a year giving an extra 46p a week.
With the proposed flat rate pension of £140 per week, that adds up to the average retiree picking up £163.46 per week or £8,499.92 a year. For those that work in months, that is £708.25 per calendar month.
Now, an over 55 can measure that expectation gap of what they want to do in retirement against what they can afford to do.
Recent research by pension provider Axa Wealth reckoned basic living costs in retirement come to £16,000 a year – without taking long term care costs in to account. These figures mean most pensioners start playing catch-up with a shortfall of £7,500 a year.
That promise of catching up on all those things you wanted to do but couldn’t while working looks more like a cruel joke for the over 55s approaching retirement.
Accelerating the pension withdrawal to meet those expectations depletes the fund quicker, so if your hopes are greater than those your pension can fund, you have few options -
- Save more before retirement
- Work longer
- Consider equity release to boost savings
- Reduce your expectations
Making the most of your money by sensible investment and savings advice from an experienced independent pensions adviser is one way to make retirement more comfortable.
Related Posts :
