Bailey Richards Insights

How much money do you need to retire?

Posted by Simon Richards on Nov 18, 2018 11:45:00 AM

This is your number - a very important figure to know. When you reach it, you can comfortably leave work, safe in the knowledge that you will have the required income. The hard part is getting a number that takes into account the potential for your circumstances to change.

Your net worth isn’t your number. Instead, it’s the fund of assets that you use to replace your income when you leave your job. For instance, unless you plan to sell (or release equity from) your home, it shouldn’t be taken into account.  

There is no one-size-fits-all answer. Every retirement is different in terms of length, lifestyle and location and every retiree has a unique amount of savings and investments, as well as various pension schemes throughout their life.

To give you the most accurate reflection of your number, we suggest there are five things you need to consider

1. Your retirement date

When do you plan to retire? We all have an age in mind where we feel retiring from work would be the right decision. Whether you’re training someone suitable to take over your role when you exit or there’s something you’d like to achieve in your career before you decide to leave, decide on a point where you’d feel content leaving the world of work.

Pension freedoms introduced in 2015 mean you’re no longer so constrained by the official state pension age. Check the details of your pension schemes to find out when you can start to draw from them.

Set a realistic benchmark that you can measure your progress against along the way.


2. Lifestyle

Think about what you want from your retirement. Do you want to travel the world or perhaps you might want to live slightly more quietly, staying close to family and friends?

If long haul holidays and classic cars are your thing, you’re going to need a substantially larger retirement income than someone who is happy to live frugally in their later years. Think about how much you currently spend. If you’re a large spender now, it would be risky to assume that you’d be happy to cut down on your expenditure when you get older.

However, remember to take into account any expenditures you have now but won’t have once you retire such as raising a young family or expensive rail commutes.


3. How long you might live

Of course, this is impossible to predict. However, we are living in a time where people are living longer and longer than before. Many of us will live into our nineties, if not beyond. If you retire in your fifties, it’s wise to take into account that you’ll probably live for thirty years at least.

On the other hand, if you have any medical conditions which you’re certain mean that you won’t live past a certain age, you might be able to afford to retire earlier.

While it might not be something that’s pleasant to think about, living longer means that you may need to take into consideration the costs of long term care.


4. Unconsidered costs

As you’ve lived long enough to be considering your retirement, we’re sure you’re well aware of life’s tendency to produce the unexpected. You should factor in plenty of room for things to change.

Twenty years down the line you might have grandchildren who need help through university, you could find the house of your dreams and decide to buy it, and so on… The possibilities are literally endless. Who knows what could happen.


5. Financial planning

This unpredictability is what makes retirement planning so important and, simultaneously, so difficult. It’s incredibly hard to come up with a number and life’s unpredictability means you have to take into account the multitude of ways that things could change.

To really get an accurate reflection of how much money you need to retire, you should consider some professional financial planning. A bespoke financial plan will identify how much you’ll need to reach your retirement goals.

With some expert help, you could get a prediction of how your assets, pensions and savings compare to your retirement objectives. A financial expert can help predict how their value might change with time and what this would mean for your plans.

At Bailey Richards we are highly experienced retirement planners. Getting in touch with us is the first step to having more certainty about your retirement. Give us a call or book a meeting with one of our financial advisers.


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Topics: money, retirement