When Will You Have Enough To Retire?

Elderly Couple with Dog

In “Retirement is an income, not an age“, Shrewdcookie makes the good point that you can’t really guarantee a retirement age any more, and that you really need to be planning the the amount of income you’ll require to live for the length of time you expect to live after giving up work.

They are thinking of “retirement” as an age, yet in reality it should be an income – when you have sufficient assets to provide you with enough income to replace that which you earn working the 9 to 5, then you are in a position to “retire”.

Now, given that I’d like to retire at the age of 40, and hope to live for at least another 40 years after that, and given I’d like an annual income of say, £50,000 then I guess I’m going to need to win the lottery between now and my 40th birthday.

If you’re slightly more realistic, you might want to find out what monthly contributions you need to acheive your retirement goal. This pension calculator might give you a very basic idea of what you should be putting away each month.

2 thoughts on “When Will You Have Enough To Retire?

  1. A couple of points are worth making here.

    Firstly, it would be a lot easier to know the capital you need for producing income if you knew how long you were going to live for.

    Secondly, based on current rules about pension credits, you either need to save a lot in retirement or none at all and ask the State to help you out. Modest savings only just negate whatthe state would pay.

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  2. Saving for your pension is a ‘good’ thing but the problem is dealing with all the risks and uncertainties. However I believe there is a solution to this.

    A new type of pension is now available that doesn’t invest in the stockmarket and simply provides people with a known, fixed and certain amount of pension from their future selected retirement date.

    With the death of final salary pension schemes, pensions for pretty much everyone in the UK now works like this:

    You (or if you’re lucky your employer) make pension contributions. These are then invested in some fund(s) that will earn an unknown return (it can even be negative!) and finally converted into a pension (income) at retirement using an unknown conversion factor!

    There are various tax reliefs/incentives to do this but, the final pension (ie the income you get when you retire until you die) is very uncertain and difficult to predict accurately. This is because no-one knows what investment return the funds you’re in will produce AND no-one knows what rate you will be able to convert your unknown final pension fund pot into an income (these are called annuity rates).

    In the long run, and “on average” stockmarkets provide investors with decent returns to compensate for the risk but many feel uncomfortable placing their entire pension fund (and thus their standard of living in retirement) at the mercy of the stockmarket. And when you get 5 or 10 years from retirement the risks are even greater.

    The answer is to have a mix of pensions – stockmarket investments for potential return and the new guaranteed pension to reduce risk and create some certainty.

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