This is the single most asked question I come across and a familiar question that I hear people debating. I’ve heard responses to this question, such as; “you need a million-pound pension fund” or even something along the lines of; “I don’t have/ believe in pensions” - this is something I will pick up in another article.
Before I precariously sit on the fence and get splinters with my answer, let me state at the outset - there is no silver bullet. There is no such thing as a “one-size-fits-all”. Just because your mate Billy down the pub does something doesn’t mean it’s going to work for you.
Mini back-story to how we can access our pension fund:
Prior to the pension freedom act, which came into effect in April 2015, the only real way of accessing our pensions was by purchasing an annuity which would provide us with a guaranteed level of income during our lifetime, so we never had to worry about the fund “running out” or fund performance.
The act allowed us to access our pensions in a much more flexible way, but we now need to focus on how much we need to contribute to the pension and making sure the fund does not run out when we’re drawing upon it. Drawing too much in retirement will mean the fund is not sustainable, and it will run out!
At present, we can access our pension funds from 55; however, from April 2028, this will increase to 57. We’re all living longer and fuller lives, and if you’re drawing on your pension at 55/57, you could potentially need the fund to last upward of 20 years.
Example: Sustainable V Not-sustainable
Mr Anderson retires at 67 and has a £300k pension fund, and at a 5% withdrawal, this would produce him £15,000 per year for 20 years if his fund was in a cash account. He’ll be 87 years old when the fund runs out if he hasn’t passed away.
If we increased his withdrawal to 10%, the fund would deplete within 10 years at the age of 77 – this wouldn’t be sustainable for the long term.
These examples are based on cash accounts, with no investment growth forecasts factored in. It’s important to remember that investments can go down as well as up.
State Pension:
One area that people tend to forget to incorporate in their retirement calculations is their state pension.
As it currently stands, as of May 2023, you will need to contribute 35 years of national insurance contributions to qualify for the new state pension, which currently sits at £203.85 per week or £10,600.20 per annum.
This useful link www.gov.uk/check-state-pension will take you to the gov.uk website where you can get a forecast on your state pension.
Now we get to the main question ‘How do I know how much I need to contribute?’:
This is where Voyage Financial Planning comes in; however, there are certain things you need to consider before we can make our advice:
• At what age would you like to retire?
• Do you want to fully retire or lose to phase your retirement?
• How much income would you like in retirement to enjoy a comfortable & sustainable retirement?
If you would like to find out more information, you can e-mail us at info@voyagefp.co.uk
