Estimating how much of a pension you need to aim towards involves a bit of maths, but it’s worth it to gauge where you’re at … and how far you need to travel.
Calculators ready?
Nearly 4 in 5 people don’t know how much money they’ll need in retirement. So what’s the answer?
- Start with your budget and outgoings right now
- Let’s now delete expenses you won’t have when you retire. For example, your mortgage may be paid, your travel costs may be lower and your kids may no longer be dependent.
What we’re calculating is your basic living cost, your Comfortable Life cost.
To set your expectations, use this handy guide at https://www.retirementlivingstandards.org.uk.
Now we’ll talk Bucketlists. This might require some guesswork but total up the cost of those big-ticket, bucketlist items on your horizon per year and divide by 12 for a monthly value. Now:
Comfortable Life + Bucketlist = Baseline
… a baseline for how much you’ll need to spend each month.
3.
Let’s now take into account your State Pension, which is set by the government. Though the rules can change, a full state pension is currently around £780 per month and it should increase in line with the cost of living.
You can check your state pension forecast at https://www.gov.uk/check-state-pension
The calculation is now Baseline – State Pension = Excess
Excess is a rough idea of extra income you’ll need to generate from your personal or workplace pensions.
4.
It’s now time to see how much of that Excess you’ll make up via your Personal and / or Workplace Pensions, so let’s go find out how much is in there.
These pensions may be scattered in different places so it’s hugely important you get a handle and keep track of them. If you think you’ll lose track, consider consolidating your pensions when you next change jobs.
This can be tricky but don’t worry – Money Means can help.
You can trace your pensions by using the government service: www.findpensioncontacts.service.gov.uk.
5.
Now, use the Money Means pension calculator to forecast the total income you can expect from your pension pots, based on what you have now and what you’re saving.
In very basic terms, if your Person and/ or Workplace Pension is more than your Excess you’re in a good spot. If not, we might need to plan.
6.
Going through this exercise will give you a good idea of where you are now in terms of your pension.
Even better, you can get a personalised forecast from Money Means during which we can create a plan for your future.
The important thing to remember with pensions is that you still have time, and there are always two ways to improve the income you’ll receive in retirement: save more or retire later.
Sure, a lot can change in life, and other money matters may take priority, we urge you not to ignore your pension … even if it feels oh so far away.