Am I on track for my retirement?

Looking towards your retirement can be a nice daytime distraction.

 

Planning ahead will help ensure you’re on track for the financial future you want.

 

Let’s take a look at what you might need to retire your way.


Life on the State Pension

The age for when you can start to receive your State Pension is rising. You’ll need to consider how much of the State Pension you might get and whether what you receive will be enough to live the life you want in retirement.

Could you live the life you want on the current State Pension?

When planning your later life you're often asked, “how much do you want to live on each year in retirement?”

We have put together these case studies to help give you an idea of what you might need.

The current State Pension 2019/20

£168.60 per week

That's about

£730.60 per month

or

£8,767.20 per year

You should check what age you can start to receive your State Pension. You can also check to see your eligibility for the full amount. 

What this means...

The example on the right, shows the total annual household spend of £10,734 which is above the current State Pension. The example is based on a person's share of the average household bills for two people who are mainly dependent on the State Pension, using today's prices.

It doesn't include any mortgage or rent payments you might have or show the impact of inflation and so as the price of everyday goods and services goes up, your money won’t stretch as far as the same amount would now.

So in the example shown, it would mean cutting back in some areas and would leave no room for those unexpected events.

Source: Office for National Statistics UK national average expenditure of two adult retired households mainly dependent on State Pension UK financial year ending 2018.

*Based on average £1,750 Band D council tax for England in 2019/20, source GOV.

Where that money might go on an annual basis.

Retirement planning chart

How much might I need?

Building your financial future starts today.

Living the life you want in retirement might mean more than the current State Pension.

Our case studies can help you understand what different levels of retirement income might look like.

We know you're an individual and not a case study, so these are just to help and aren't a recommmendation.

Rachel portfolio picture


Rachel, 66, Target annual income, £12,600

Rachel is ready to retire, she has just celebrated her 66th birthday and has a pension pot of £100,000.

From her pot she was able to take a 25% tax-free lump sum of £25,000 which she used to help fund her son’s wedding and pay off the remainder of her mortgage.

This left her with a £75,000 left in her pension pot which she is able to take in flexible monthly amounts as part of a drawdown plan until the money runs out. Which will be quite some time, if she sticks to her budget.

Knowing that her spending habits will change now that she is no longer working, Rachel set out to create a budget that would fit her lifestyle in retirement. Once a week she meets her friends for a few drinks and the occasional trip to the theatre. This costs her about £30 each week. And she still wants to make sure she and her husband can escape to the sun for a couple of weeks each year. Rachel has set a target retirement income of around £12,600 a year. She thinks this will be enough for the basics and one or two nice things throughout the year.

With the options she has chosen, Rachel’s pension pot will last her for 27 years. So when the money is gone she will need to rely on the State Pension. By which time she will be 94, so Rachel thinks she is on track for the retirement she hopes for.

Let's look at her yearly numbers

The income from her drawdown can be added to her state pension and go towards those things that she is keen to keep up in retirement.

State Pension

£8,767.20

Drawdown

£4,000.00

Total income

£12,767.20

Total after tax

£12,713.76


Total outgoings

She still has the same outgoings as most people her age.

Average outgoings

£9,858.00

Two week holiday

£1,200.00

Weekly outing with friends (£30)

£1,560.00

Total outgoings:

£12,618.00


What this means...

This would mean that Rachel's budget is still pretty tight outside of this. Leaving her £96 per year. So she has to budget incredibly carefully in order to be able to maintain the lifestyle she wants to lead in retirement, or consider taking a lower amount over a longer period.

Case study is based on a 20% income tax and Personal Allowance rate of £12,500 for 2019/20. No other income or inflation is taken into consideration. As the price of everyday goods and services goes up, your money won’t stretch as far as the same amount would now. The investment growth is calculated at 5% per year and this is not guaranteed. This includes an annual management charge of 1.35%, but does not include any other charges that may apply. Tax rules can change and the impact of taxation (and any tax relief) depends on your circumstances.

Rachel portfolio picture


Richard, 66, Target annual income, £15,000

Richard is looking forward to his retirement, he celebrated his 66th birthday surrounded by his grandchildren and friends. He has a love of travel and is keen to see more of the world in his retirement.

Richard was fortunate enough to have saved £100,000 into his pension pot. He chose to take the 25% tax-free lump sum of £25,000 and used this to pay the remainder of his mortgage.

This leaves him with £75,000 remaining in his pension pot. He has set a target retirement income of £15,000. Richard believes that he can live fairly comfortably on this amount.

After going through his retirement options, with his target income he sees that if he opts for a regular monthly income from a drawdown plan his money would last for 13 years. Richard likes to stay fit at the gym and can’t wait to get working on his backswing at his local golf club. When not on the golf course Richard also likes to spoil his six grandkids.

Richard is aware that when he reaches 80, the extra income from his pension pot will have ran out. So he will have to rely on the State Pension in just over 13 years' time which will significantly alter his lifestyle*.

Let's look at his yearly numbers

So his yearly budget looks a little like this:

State Pension

£8,767.20

Drawdown

£6,700.00

Total income

£15,467.20

Income after tax

£14,873.76


Total outgoings

He still has the same outgoings as most people his age.

Average outgoings

£9,858.00

Winter sun holiday

£1,400.00

Family outings

£900.00

Gifts for grandchildren

£492.00

Golf club membership

£886.00

Home improvements

£1,110.00

Total outgoings:

£14,646.00


What this means...

This would leave Richard with around £228 each year after paying tax or about £19 per month for other essential items or a few nice-to-haves. Richard is able to use his extra pension income for a few luxuries, but he still has to budget carefully in order to be able to maintain the lifestyle he wants in retirement.

Case study is based on a 20% income tax and Personal Allowance rate of £12,500 for 2019/20. No other income or inflation is taken into consideration. As the price of everyday goods and services goes up, your money won’t stretch as far as the same amount would now. The investment growth is calculated at 5% per year and this is not guaranteed. This includes an annual management charge of 1.35%, but does not include any other charges that may apply. Tax rules can change and the impact of taxation (and any tax relief) depends on your circumstances.

* The life expectancy for a 66 year old male in the UK is 85 years. This means Richard will need to rely on the State Pension for atleast 5 years or more. Source: Office for National Statistics life expectancy calculator

Use our Retirement Income Planner to see how taking money out of your pot can impact how long your money might last.

Change my income or take a lump sum 

Over 50? Not sure how much you’ll get from your pension?

Not what if you should be doing something with your pension? Not sure how much you actually have? Not sure if you should combine all your pots into one pension?

The ten years, or so, in the run up to retirement is a critical time in terms of planning for a good retirement.  

An adviser can review all of your pensions, give you a clear picture of what you have and recommend the right actions you should take now. If you don't already have an adviser, we can help.

Find out more and arrange a chat

Where can I learn more?

Call us on 0345 640 2000 9am-5pm, Monday to Friday

Our dedicated teams are here to help answer questions you might have when you are ready to retire.


 

We recommend you use Pension Wise, a free impartial guidance service from the government to help you understand your options at retirement.

Visit pensionwise.gov.uk or call 0800 280 8880 to book a phone or face-to-face appointment.

Visit the www.hmrc.gov.uk to get information on tax rules and legislation which may affect you if you have a pension plan or looking to access your options.