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As inflation continues to soar, many pensioner savers may be unaware if they are saving enough. Despite the state pension increase from April, rising bills may just be enough to cover day-to-day expenses.
Express.co.uk spoke exclusively with Romi Savova, CEO of PensionBee about how people can save for their retirement.
She said: “While it’s estimated that most people will need about 70 percent of their salary to retire, this largely depends on individual circumstances and lifestyle.
“An online pension calculator can help savers decide how much they might need to save to be able to retire at their preferred age.”
Data from the Retirement Living Standards set out by the Pensions and Lifetime Savings Association showed that for a minimum lifestyle in retirement, a single pensioner would need a yearly income of £10,900 (not including state pension).
For a comfortable retirement, they would need £33,600 a year. This covers all the basics and then some, with more luxuries such as a longer holiday each year.
With this amount, individuals will mostly likely be able to live a similar lifestyle to when they were working.
As well as the state pension, Britons will need to save £627,844 extra to get this yearly income of £33,600.
If they’re not expecting to get the state pension, they’ll need to have saved £869,533 in their pension pot to withdraw this.
However it should be noted that as one gets older, the amount they spend each year could decrease due to fewer outings or no mortgage payments so people can live off less than this total amount.
The average UK pension pot is quite a bit lower than the recommended pension pot.
Data from ONS (Pension wealth: wealth in Great Britain) shared the average pension pot by age in the UK
16 to 24 – £2,700
25 to 34 – £9,300
35 to 44 – £30,000
45 to 54 – £75,500
55 to 64 – £107,300
One of the key ingredients to pension wealth is increasing the monthly pension contributions and letting compound interest work its magic over time.
On the PensionBee website, they explain that a pension isn’t the only source of income people could rely on in retirement.
They may also receive money from:
- Property rental
- Other investments
- Taking on part-time work.
Another option is to raise money by releasing equity in the home, though it is advised that people should speak with a financial adviser before doing so.
Whichever approach one takes, deciding what to do with a pension is an important and personal decision.
While everyone can legally access their personal and workplace pensions from age 55 (57 from 2028), it doesn’t mean they always should, particularly in periods of high inflation.
Before making any withdrawals, a saver should carefully consider if they have any other sources of income besides their pension, and how long they anticipate it to last.
When it comes to accessing a pension, a widely recommended withdrawal strategy is the four percent rule, where a saver can draw down four percent of their total savings each year without adversely impacting their overall pot size.
Withdrawing based on a percentage figure automatically reduces the amount available when markets are lower, helping savers to avoid cashing out too much of their savings at once while keeping the remaining amount invested.
Claire Altman, Managing Director of Individual Retirement at Standard Life said: “The important thing to note is that managing retirement income is also not a “one and done” approach. For example, a combination of drawdown and an annuity can give the best of both worlds – an annuity covering essential costs, with the remainder left accessible in drawdown.
“This could allow people to take a little more risk to cover non-essential costs, with the potential for investment growth. With annuity rates improving with age, annuitising later in life or in stages throughout your retirement, can also help mitigate the impact of inflation eating away at hard-earned savings.
“Our most important tip? Seeking help and advice is crucial, so don’t be afraid to ask questions. Whatever course of action an individual chooses, it’s essential they do their research to make the right decisions that ensure their pension savings last the length of their retirement.”
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