Saving for your retirement is important, but knowing how much you need to tuck away each month can be difficult to quantify.
You have to consider living costs (that will likely increase in the future), your life expectancy from the time of retirement, your ideal age of retirement, and what you want to do once you finish work.
Governments experts anticipate that British workers will need around two-thirds of the final salary to maintain the lifestyle you become accustomed to once you retire.
The average salary in the UK is £26,000—which means you need a pension pot of £300,000 if you plan to spend 35 years in retirement. To work out much you are likely to need once you finish work, check out this pension calculator.
How do I work out my pension plan?
Because your circumstances change when you retire, so will your spending habits. Knowing your plans for retirement ahead of schedule will give you a better idea of how much you will need to save at any given age.
It is reasonable to anticipate that your current outgoings will be reduced by the time you retire, but your monthly expenditure in other area will increase. Here is what to consider.
- Housing – will you have paid off your mortgage or will you still be paying housing costs. If you are renting when you retire, the likely increases will need factoring in to your monthly spend.
- Heating – utility bills will continue to rise and because you are spending more time at home, you will use more energy. Consider whether you will make significant savings by switching to alternative fuels or living overseas. Pensioners over 60 could also be entitled to winter fuel payments.
- Getting around – if you expect to be driving when you retire, you need to budget for car expenses. If you commute to work, you can add this cost to your saving column together with public transport allowances for over 60’s.
- Leisure spending – when you have more free time to spend pursuing hobbies and holidays, you will probably spend more than you do now. Look into holiday entitlements you can get from specialised travel agents
- Other retirement supplements – UK residents are also entitled to several other benefits once they reach retirement age and beyond. For more details check out this list of benefits for pensioners.
There are also other ways of making money when you retire. There may be pension funds available to you from jobs earlier in your career. If you think you may have made contributions that you had forgotten about, contact the government-backed pension tracing service to run a check for you. The service is free of charge.
If your children have moved out and you have a spare room to rent, you can help top up your pension by taking in a lodger. You may also have a hobby that can help you top up your income.
The sooner you start making plans for your retirement the better, otherwise you could leave yourself short and struggling financially in twilight years. If you are not sure how to start planning for your pension, seek the advice from a retirement specialist.
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