Can I afford to retire?

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

A question we frequently ask clients is ‘How much do you anticipate you will spend each month, or year, in retirement?’. The question is one some clients have not thought about. Whether you are in your early 20’s or mid 50’s, it is a question which we should all consider to some degree – after all, it is one which will help determine the lifestyles we can, or cannot, live. So, what do I need to consider?

Expenditure: How much will I need in retirement? Items can be categorised into three key categories which I state below:

  • Necessary expenditure – items such as mortgage/rent, food, water, electricity, bills
  • Important – phone, petrol
  • Luxury – TV subscription, memberships, birthday celebrations, holidays

A total of the above expenditure categories is likely to give an estimated expenditure target.

A budget planner is always useful to consider how much you anticipate will be needed towards each expenditure category. Inflation will also have a bearing on the above with expenditure likely to increase year-on-year.

Income: most of us will have a State Pension which will form a base line level of income to assist towards our expenditure in retirement. Additionally, some will be fortunate enough to have guaranteed income sources from Defined Benefit pension arrangements, or a rental property providing an alternative source of income.

Should the expenditure figure be higher than that of the income figure, then an income will need to be generated from alternative sources.

For example, if expenditure is £30,000 per annum whilst the guaranteed income stream is only £13,000 per annum, then an income of £17,000 will need to be generated from alternative assets (pensions, savings, investments, property). Retirement could, on average, be 20+ years and thus a shortfall between income and expenditure of £17,000 would require a ‘pot’ of £340,000. However, when considering inflation, the total amount needed is likely to be significantly higher. If we assume inflation is consistently 2.5% for the next 20 years, the required pot would be in excess of £430,000.

The figures in the above example may seem alarming to some and highlights the importance of preparing yourself for retirement and understanding whether your intended lifestyle throughout retirement is achievable or not.

So, ask yourself; am I ready to retire?

At Wingate Financial Planning we strongly believe in financial planning for the long term and are here to assist in making informed, financial decisions with you. By building personalised cashflow plans for our clients, this helps to highlight any areas of concern in order for them to achieve their long-term goals and objectives to secure their financial futures. Please feel free to get in touch.

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Are you ready to make informed decisions about your money?