Most people strive to live comfortably in retirement. But knowing how much money you’ll need to live on in the future, can be hard to pin down.
The Pensions and Lifetime Savings Association (PLSA) has launched national income and living standards to help people work out how much income they might need.
They have set out three living standards:
Minimum: £10,200 a year which will cover all your needs with a bit of money left over for fun
Moderate: £20,200 a year, which would leave you more financially secure
Comfortable: £33,000 a year which would mean you have more financial freedom and can afford some luxuries
These figures are based on a single person living outside of London.
Find out how much your pensions could be worth
Our pension calculator can help you to work out how much your current pensions might provide you with when you retire.
If you are not on track for the amount you think you will need at retirement, a financial adviser at Four Wealth Management can help you create a plan.
Book a no-obligation meeting now to discuss retirement planning
Understand your pension options early
Understanding your options at retirement will make transitioning to retirement easier for you. For many the State Pension will not provide sufficient income to provide a good standard of living at retirement. The current State Pension is £185.15 per week in the 2022/23 tax year. This is £9,627.80 per year which provides the minimum standard of living as set out by the Pensions and Lifetime Savings Association (PLSA) above.
The State Pension starts at age 66. However, many people wish to retire before this age. Typically you can access your personal pension from age 55 (rising to 57 in 2028). At Four Wealth Management, you can start saving into a personal pension. There are three main options to receive income from your personal pension. These are:
- Drawdown: keep your pension invested and take the amount of income you want when you want it. You can usually also take a 25% tax-free lump sum. This option is flexible and means that your pension pot might benefit from additional growth as it will remain invested. You can set up monthly or annual withdrawals. However, it is important to take financial advice if you choose this option to make sure you do not withdraw your money too quickly and run out of income at retirement. Book a no-obligation meeting now.
- Lump sum: Similar to the Drawdown option, however you can opt to receive adhoc lump sums as and when you need them as opposed to regular income. 25% of each withdrawal is usually tax-free and the rest is taxed at your marginal rate. This option is flexible but carries the risk of running out of money if you withdraw too much too quickly.
- Annuity: an annuity will provide you with a guaranteed amount of income for life. Your annuity income is taxable. An annuity is paying a lump sum from your pension pot to an insurance provider in return for a set amount of monthly guaranteed income. The income will typically cease when you die. However, in recent years due to increased life expectancy, annuity rates have been very low and may not provide the level of income you are hoping for in return for your lump sum.
How you choose to take income at retirement is an important decision, and it is important that you seek guidance first. This is because some decisions may be irrevocable and define how you live the rest of your life. For example. If you buy an annuity, you cannot change your mind.
Book a no-obligation meeting now
How long does your pension pot need to last?
Increasing life expectancy means that pensions need to last much longer than they used to. With flexible options such as Drawdown available, it can be tempting to withdraw any amounts you want. However, it is important to create a financial plan for your income at retirement to make sure that you do not withdraw the funds too quickly and run out in later life.
If you are keeping your pension pot invested and using the Drawdown option for income, you can choose to only withdraw the income being generated from your investments so you do not reduce the capital. This is known as taking natural income (or natural yield) and means that your capital can hopefully continue to grow in value over time as you are not tasking withdrawals from it. However, one risk of this strategy is that all investments can go down
A financial adviser at Four Wealth Management can create a cash flow forecast for you to help determine how much income you can take from your pension each month.
Book a no-obligation meeting now
Book a meeting now
The best way to make sure you are making the best decisions for your individual circumstances when it comes to making decisions about your retirement is to book a no-obligation meeting with a financial adviser at Four Wealth Management. The meeting can be at your home address, at one of our offices or on zoom. The meeting will last approximately an hour and will give you an understanding of which options might be suitable for you.
Book a no-obligation meeting now
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.
