A common concern as people approach retirement age is whether they’ve saved enough to enjoy their dream retirement. So, how much is enough and what level of retirement costs do you need to enjoy your later years? Let’s look at the different factors you need to consider.
At Balance Wealth Planning, our focus is on helping our clients plan for a financially secure and fulfilling retirement. However, one of the main problems we often see is that many people don’t understand what ‘enough’ looks like when it comes to saving for their retirement.
The true cost of retirement
When you’re considering how much you’ll need in retirement, there is guidance available to help you with these calculations. The Retirement Living Standards website is updated regularly with the suggested level of income required to support you in retirement. The figures on their website take into account the current cost of living and changing financial conditions.
Many people overlook the hidden cost of inflation and unexpected expenses, such as emergency home repairs. Depending on your present lifestyle costs, you might also find that your savings don’t stretch as far as expected, potentially limiting your retirement dreams.
If you’re looking for a comfortable retirement, then the estimated cost for a couple is £59,000 per year and £43,100 for an individual. The Retirement Living Standards says this sum allows for “more financial freedom and some luxuries”. However, when you look closely at what this figure covers, many people would not consider this a ‘dream’ retirement.
How to work out your retirement costs
Below is the Retirement Living Standards’ guide to costs for a couple living on a comfortable income of £59,000 per year:
- Home maintenance – the annual figure includes £600 to pay for repairs, which allows for costs from tradespeople. This amount is a minimum estimate to keep your home well-maintained, along with a £300 emergency fund.
- Food and eating out – £130 for groceries, £30 a week on takeaways, £100 a month to take friends and family out for a meal, and £80 for other food outside of the home, such as cafes. If you enjoy dining at restaurants on a weekly basis, then this figure might not stretch to a highly sociable lifestyle.
- Clothing and footwear – the annual figure includes £1,500 per person for clothing and shoes, which works out roughly to £125 each a month. If you usually buy good quality items or from designer brands, then this might not be enough to satisfy your fashion tastes.
- Leisure activities and holidays – a full broadband and TV subscription would be covered, along with an annual two-week holiday in a sunny European location with spending money. It would also include three-weekend mini breaks in the UK. It’s worth noting that the annual figure wouldn’t cover a more extended holiday in long-haul destinations such as the USA, Australia or Asia.
Planning for your retirement
Although in many cases, people have stopped paying their mortgage by the time they retire, not everyone is in this position. If you’ve remortgaged or you have an equity loan, then you might still have repayments to make after you’ve stopped working.
The key factor for retirement planning is to remember that you’ll no longer be earning a steady salary from employment. If you’re a business owner planning an exit strategy, then you’ll no longer be reliant on dividend income unless you plan to hold company shares. It’s worth noting that dividend-paying stocks can be a valuable source of retirement income – please speak to our financial planners for advice.
Unless you have another form of revenue or shares, you could be solely reliant on your pension income and savings. You should be able to access your private or personal pension if you retire at 55 years or over (57 years from 2028). However, if you’re planning to retire next year, you’ll need to be at least 66 or over to access your State Pension.
What does your future retirement look like?
As everyone’s retirement plans are individual to them, you’ll need to decide how you’d like to spend your retirement. Start by gaining a full understanding of the costs of your present lifestyle and future goals. This will help you to understand what you might need for your future retirement. If you want a luxurious standard of living, then you’ll need to consider some strategic cash-flow planning, and assess your pensions, investments and savings.
Remember, you might want to do much more when you retire than you’re currently doing in your daily life. You might want to take up a new hobby or spend more time enjoying a particular activity. Perhaps want to live abroad or travel for a few months a year. So, when you’re calculating your retirement costs, you’ll need to factor in your aims and aspirations.
As an example, these are the things you’d need to consider if you wanted to buy a holiday home when you retire:
You will not only have to consider the cost of purchasing a second property, but also the cost of running and maintaining two homes. It’s worth noting that the additional Stamp Duty surcharge of 5% on top of standard rates applies to second properties worth more than £40,000. Even if you buy property outside the UK or it’s just a share in a property, this Stamp Duty rate will apply. Therefore, you will need to consider this extra cost in your calculations.
Retirement Planning, Nottingham and Lincoln
When it comes to how much is enough for you to achieve your dream retirement, this will depend on your goals. By planning ahead and gaining an accurate view of your cash flow and future income, you’ll have a greater chance of achieving your aims.
At Balance: Wealth Planning, we can help you build a strategic retirement cash-flow plan.
Our financial planning team always factor in in rising costs, tax efficiency, and long-term financial security. Our approach to retirement planning will enable you to retire with more confidence, so you can live the lifestyle you want.
If you’d like help planning your dream retirement, get in touch to speak to our financial planners.
Sources:
https://assets.publishing.service.gov.uk/media/5a7f02e640f0b62305b84929/spa-timetable.pdf
https://www.retirementlivingstandards.org.uk/
https://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/stamp-duty-for-second-homes/
