How much do you need to save for retirement?

Oct 28, 2016 | Tony Byrne's View

I met witcalculator-1680905_960_720h one of my clients John this week for our regular annual review. John is age 50, self-employed and has been contributing to his pension and ISA for some years.

John has always wanted to stop working at age 55 or at least stop working as hard as he currently is. He wants to do this as his parents both died young in their retirement without really being able to enjoy their money. John doesn’t want the same to happen to him and has lots of exciting plans once he stops working such as travelling and helping his children start a business.

As John now has only 5 years left until his ‘retirement’ date he asked me “how much extra money do I need to save over the next 5 years to ensure I can stop working at 55?”

In order to answer this, we needed to understand John’s current position in terms of his wealth e.g. pensions, savings and investments. Next we needed to know what John’s spending budget was in retirement, in the early years and the later years. We also factored in inflation and future taxes. Finally, we needed to make some assumptions as to the type of investment returns John could expect given his attitude to risk.

We have a system called Money Forecast that helps us project the result of all of these calculations so it is as accurate as it can be given the assumptions used.

In John’s case we worked out he needed to save an extra £26,000 per year over the next 5 years in order to be able to live the life he wanted in ‘retirement’. We then put together an investment plan that would help get there and made sure we factored in some ‘what if’ scenarios. These included: What if he was unable to work until 55? What if he wanted to stop working earlier? What if he spent/less or more in retirement?

John was delighted with the results and is now well on track to achieving his dream.

Do you know how much you need to save? Do you have a plan? And if you have a plan have you stress tested it with ‘what if’ scenarios? As Benjamin Franklin apparently once said, “If you fail to plan, you are planning to fail!”.

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.

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