What Price Retirement?

February 01, 2018
Taryn Lee-Johnston

When it comes to working out how much money you’ll need to pay for something, you need to have at least a reasonable idea of how much it’s going to cost.  This holds as true for retirement as for any other aspect of financial planning.

Working out the cost of your retirement

Look online and you can find plenty of sources giving suggestions as to how much you’ll need to enjoy a comfortable retirement.  These may be good places to give you some inspiration, but the reality is that the cost of your dream retirement will depend entirely on what your dream is.  For example, if you want to spend your winters cruising somewhere rather warmer than the UK then you’ll need more than if you’re happy to spend them curled up by the fire with a pile of good books.  Even if you decide to let dreams take care of themselves and concentrate on practical needs, the fact still remains that the cost of living in the UK varies widely depending on where you live and that is before you start thinking about options such as retiring abroad.  Likewise the opportunities for earning extra income can vary depending on where you live.  That being so, realistically, you will need to do your own sums when it comes to deciding how much money you will need for your retirement.

Working out how much you need to save per month to finance your retirement

This is actually a hard question and as such you may find it very beneficial to get professional help to answer it.  The only truly simple answer is: “as much as you possibly can”, but this is likely to be of very little practical help given that most people have to work out how to balance the competing priorities of dealing with decisions taken in the past (such as debts) and managing the present as well as preparing for the future.  The practical answer to how much you need to save per month to finance your retirement will depend on a number of factors such as your current age, your intended retirement age and your plans for retirement as well as what you can realistically expect to receive as a return on your retirement-related investments.  Remember, however, that the phrase “how much you need to save” can include contributions made by employers (such as workplace pensions) as well as money gained as a result of tax breaks for pension savings, so even though the numbers may look big and scary, you may be able to get help to achieve them, perhaps more than you currently realise.

Working out the practicalities of how you are going to save for your retirement

This is another very broad topic with which it may be useful to get professional help.  The first step in working out the practicalities of how you are going to save for your retirement is to work out how to maximise your disposable income, so that you have as much money as possible to save for retirement (or to put towards other purposes).  After that you may wish to look at what your options are for getting “free money” for example employer contributions (such as under the auto-enrolment scheme) and tax incentives for saving towards your retirement.  It’s also worth noting that while “retirement saving” and “pensions contributions” can often seem pretty much one and the same thing, you can save towards your retirement in other ways, such as via a Lifetime ISA or even a standard ISA, although only the former attracts government contributions as well as tax benefits.

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