The precise amount you will need to save for retirement varies depending on a wide range of factors.
These include when you retire, how long you live, whether you derive your income from an annuity or through income drawdown (directly from your pension pot) – and more.
The chief hurdle to cross, however, is psychological. Moving from a focus on earning – and saving – to a mode of life that is focused on spending what you have accumulated can be a significant moment in our lives.
What do I need in my pension pot for an income of £50,000?
Let’s take £50,000 as a round number to work with as a specimen annual income in retirement.
According to our own research, based on a income drawdown approach, somebody retiring at age 65 would need to build up a pension pot of £1.25m to be reasonably sure of being able to draw an income of equivalent to £50,000 a year for 20 years – prior to tax.
This assumes investment growth of 4% a year after inflation and charges, and means your pension income has every chance of growing to keep pace with the cost of living.
Understanding these variables highlights the importance of getting expert advice to help minimise this risk and take away unnecessary stress.
There are many factors to take into account as you consider the retirement income you will need.
Whether you supplement your pension with ISAs, buy an annuity (which guarantees an income for life, or for a certain period) with at least some of your pension pot, and how you protect against the corrosive effect of inflation on your income are all important decisions that can make a difference.
“There is no ‘one-size fits all’ solution for creating a retirement income,” says Liz Alley, Brewin Dolphin’s divisional director of financial planning, “and there are a lot of moving parts that need to be assessed and that may require bespoke strategies.”
Think beyond your pension
This is one reason why people saving for retirement are encouraged to boost their savings with ISAs. While ISAs do not benefit from tax relief on contributions, all withdrawals are completely free from further tax, and there is no limit to the amount you can accumulate in ISAs in your lifetime.
This means they can provide a substantial tax-efficient income that can allow you to leave your pension fund untouched in your first years of retirement, giving it longer to grow.
To find out more about how Brewin Dolphin can help toward your financial goals in retirement, start a conversation today.
The value of investments and any income from them can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
The opinions expressed in this publication are not necessarily the views held throughout Brewin Dolphin Ltd.