According to a 2018 study by the Office for National statistics , the average weekly household expenditure in the UK was £572.60 per week. That’s £30,000 per year.
The current basic state pension is £175.20 per week so, assuming there are two of you that qualify for the basic state pension, that’s £350.40 per week.
If the average household needs £572 and the state are (hopefully) going to provide £350, this now leaves a shortfall of £220 per week, or £11,440 pounds per year.
Assuming a safe withdrawal strategy of 4% per annum, then you will need a pension fund of around £286,000 to meet this shortfall….and that’s only going to make you average… PLUS you will have to wait until statement retirement age to achieve that! With the state retirement age increasing to age 68 for the younger generation, this doesn’t leave a lot of ‘healthy’ retirement years to look forward to.
So, what if you don’t want to be average?
What if you don’t want to wait until you can receive the state pension to retire?
What if you both don’t qualify for a full state pension?
Importantly, what are you going to do if you don’t have £286,000 in your pensions? (More importantly, do you have any idea if you will have £286,000 in your pensions at retirement?)
If not, the worst time to find this out is when you are retiring. The best time to find this out is if you’ve got many years to retirement. As an adviser, unfortunately we see many people who start to think seriously about their retirement in their 50’s and its often too late to make up the gap. Ideally they should be thinking about this in their 20s and 30s.
Working with a financial planner will help you to identify the amount of income YOU need in retirement and whether you’re on track to achieve it or not. If not, then you and your financial advisor can put a plan together.
A financial advisor can also help you to understand the pensions you have in place already and whether they are fit for purpose or not. They can analyse whether you are overpaying in charges, how the funds are performing compared to relevant benchmarks and what options are available for you to draw your benefits at the chosen age. When you finally start to take benefits from your pension they can also help you to do this as tax efficiently as possible.
Admittedly, pensions may not be the most exciting subject in the world, but neither is being average.
If you want a better than average retirement give us a call.