Aug 2024
Q: I'm 63, I've worked hard all my life and I've been thinking of retiring - but can I afford to?
I had a health scare last year and while I'm fit and well now, it got me thinking about the future and I want to spend more of my time doing the things I enjoy with the people I love.
I've worked all my life and paid into a pension that is now worth around £200,000. Even though I have paid off my mortgage, I'm worried this isn't enough to live on if I retire. Is there a "magic number" we should all be aiming for, or will we all be working forever?
A: If I had a penny every time I'd been asked this question I could have retired years ago!
I suppose there is no "magic number" as such, because all of our lifestyles vary. You mention you've paid off your mortgage, which is one major outgoing you won't need to worry about - so you might need less than someone who hasn't paid off theirs.
Having said that, you might have an expensive hobby that you enjoy, or contribute outgoings for things like childcare if you have children or grandchildren.
It's also a good idea to think about later life planning.
You mentioned that you've been ill - and that just goes to show we never know what is around the corner. We're now living longer than ever and the average life expectancy for men and women is 78.6 years and 82.6 years respectively. But remember, these are just averages, it could be much longer that, leaving the planning side for retirement even trickier.
Many people overlook the fact that you don't spend the same amount of money each year, and that is no different to your working life. Whereas previously you might have spent out for a new kitchen or a new house, retirement "big spends" might be for big holidays or adaptations to your home. For later retirement, you should also think about putting a little money aside for things like care home fees or help with assisted living as you age.
As a general rule, or so says a recent article in the Sunday Times by Money Editor Johanna Noble, you should keep 40% for your "big spends" stage of retirement, 20% for home improvements and needs, and 40% for care.
It also depends on the type of pension you have - and it will vary whether you have a "Defined Contribution" or "Final Salary" pension. One pays a guaranteed income per year based on how long you've worked at a company, while the former will depend on how much is saved into it.
Pensions can also come with attractive tax benefits, not least they are exempt from Inheritance Tax (IHT) but you should also be aware of the pay-in phase as well as the pay-out phase. Drawing too much too early you could risk running out of money, but being too cautious could mean your quality of life becomes too limited.
While planning for later life, it's also a good idea to think about drafting your will and Lasting Powers of Attorney and including details of any investments or pension payments.
So, while there is no "magic number" for retirement, planning well can certainly help you decide if £200,000 is enough for your circumstances.
If you would like any further advice, contact Downs Solicitors to see how we can help.
