How big a pension do you need to retire?

Saving for your retirement doesn’t need to be a worrisome affair; after all, it’s to ensure that you get the very best out of your later years.

Ultimately, your pension needs to be able to support the lifestyle you want to lead in the future. Whatever that lifestyle looks like, your pension is the place to make it happen.

It’s okay to feel a bit overwhelmed or anxious at first; planning for the future is an important life step. So, if you need a helping hand to help you get a head start when thinking about retirement, you may want to take a look at this guide.

How much income do you need each year when you retire?

The amount of income you’ll need will be entirely dependent on your personal requirements and preferred lifestyle, so to arrive at the ideal annual figure, it’s best to picture your future first.

For example, it’s worth thinking about your hobbies, the cost of living in your area, your health requirements, where you want to go on holiday, and how much money you want to save for your family. It’s also important to factor in a financial buffer in case of emergencies.

If you plan to retire early, you’ll likely need to start paying off your debts as soon as possible. You’ll also need to work your pension budget around the additional years you’ll spend in retirement. Early retirement costs significantly more because of this reason.

How to work out your retirement budget

When it comes to working out the exact figure, it’s worth taking a look at what the Retirement Living Standards currently recommend as a minimum amount, which is £10,900 for a single individual or £16,000 for a couple.

It’s a good idea to add up your current spending for the year and then work this into your budget; there are plenty of online calculators to help you do this, or you could use the pension forecast calculator on the government’s website.

It’s important to recognise that your budget will be susceptible to changes in the economic landscape, inflation being a prime example, so you will need to revisit it over time to make sure you aren’t going to be left with a shortfall.

Retirement Income Options

When the time comes to take your retirement benefits, you have a few options available to you. You could take the whole lot at once as a lump sum, and while this may be a good way to get hold of all your money at once, you will only be able to get tax relief on 25% of the withdrawal, and your investments won’t grow (since you’ve received them all). However, this may be an option if you need access to your whole fund as soon as possible.

Another option is pension drawdown, in which you can take several lump sums from your pension when you need the money and leave the rest in the pot to continue growing.

You could also buy an annuity that guarantees you an income for life, which may be preferable for those who want regular financial security, but it may not be the best method of getting the full value out of your pension.

Many people decide to do a mix of all of the above. If you’re unsure as to which method will best suit you, it’s worth contacting a financial advisor.

Is Your Pension a DB or a DC Scheme?

The value of a DC (defined contribution) scheme is dependent on how much money you or your employer pays into your pension and how well that money performs over time.

A DB (defined benefit) scheme is established by an employer and yields a pre-determined benefit per year after you retire.

It is worth thinking about which pension you have, as it may dictate your moves in the future. For example, a DB benefit may only be truly valuable once you’ve stayed with the company providing it for many years.

iSIPP and Pension Planning

At iSIPP, we help clients everywhere consolidate their pensions into one easy to manage SIPP (Self-Invested Personal Pension), allowing them to take control of their pensions and maximise their savings.

Combining your pensions into an accessible, straightforward, and centralised location can help cut down fees, bolster your retirement budget and enable you to take control of your own investments.

If you’re interested in everything iSIPP has to offer, then feel free to reach out to our team. We’re always here to lend a helping hand and can help you consolidate your pension into an easily manageable pot.

Enjoy reading this blog? 

Why not try reading one of our other blogs on pension consolidation:

SIPPs and workplace pensions – What’s the difference?

The benefits of starting your pensions early 

Or visit our pension consolidation page here. 

Disclaimer 

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.