How much do you really need for a comfortable retirement?

There will eventually come a point in your life when you look at all your hard work and decide that you’ve accumulated enough wealth to be happy for the rest of your days. Of course, while we all look forward to this day, it’s often hard to pinpoint exactly when it might be.

One of the most common questions that our clients ask us here at Metis Wealth is: “How much do I need for a comfortable retirement?”

As you might imagine, this can often be a difficult question to answer. Not only are there many factors to consider, but it is also heavily dependent on your own needs. If you’ve been contemplating this question, read on to find out how you can know when you have “enough”.

How much wealth you will need often depends on the kind of lifestyle you want

When thinking about retirement, it’s often hard to come up with an objective answer for how much a person needs for a comfortable lifestyle.

According to market data from consumer advice group Which?, to enjoy a “comfortable” lifestyle in retirement, you would need around £19,000 a year. This is a considerable sum and would probably be able to afford you a high standard of living, but this shouldn’t be considered an objective answer.

When planning for retirement, it’s important to consider what your life would involve when you are no longer working every day. Without having a picture of your desired lifestyle, it’s difficult to estimate how much you would actually need.

For example, a retirement of long foreign holidays would probably cost considerably more than mastering your hobbies and spending time with loved ones.

Having an idea of how you would spend your retirement can give you a rough estimate of how much wealth you’d be likely to spend in this new chapter of your life. Of course, even then, you’ll need to consider your spending patterns.

It’s important to also think about how you want to use your money when you’ve retired

If you plan to spend a large chunk of your wealth at the beginning of your retirement, such as for long foreign holidays or a new home, then you may need to factor this into your calculations. Your spending patterns can significantly influence your investing strategy.

Furthermore, as you get older, you may want to gift some of your hard-earned wealth to your loved ones to share the joy. For example, you may want to help your children take their first step onto the housing ladder with a financial gift to help them afford a mortgage deposit.

While such generous gifts can have a substantial effect on the lives of your loved ones, it’s important to factor them into your calculations so you can ensure that it won’t leave you short of funds.

It may also be wise to keep a portion of your wealth to cover the cost of any care that you may need. According to figures from Legal & General, 1 in 5 men and 1 in 3 women will need residential care at some point in their lives.

Working with a planner can help to reach your financial goals

If you want to know more about when you’ll have enough to retire, you may want to consider seeking financial advice. Working with a professional can help you to accurately assess your situation and give you greater peace of mind.

Of course, while most planners don’t have a crystal ball to gaze into the future with (and you may want to be wary of the ones that do!) one important tool that they do have at their disposal is cashflow modelling.

The first step of this is to get an idea of what your financial goals are and what you want out of retirement. This is so they can predict how your income and expenditure are likely to change in the future.

The next step is to assess the current value of the assets that you hold. This may include your pensions, investments, and property, as well as any cash savings. Once your planner has an accurate picture of your wealth, they can then use it to forecast how much you will need for your desired lifestyle.

This can be helpful as having an accurate picture can help you to plan ahead and meet your retirement goals.

For example, you might hope to retire early but your forecast shows that you don’t have enough wealth to sustainably support your desired lifestyle. If this was the case, you may be able to increase your pension contributions or alter your investment strategy.

Working with a financial planner can help to give you a greater sense of confidence that you’re on track to meet your goals and enjoy the retirement you deserve.

Get in touch

If you want to know more about cashflow modelling and how it can help you to plan for retirement, we can help. Please email enquiries@metiswealth.co.uk or call 0345 450 5670.

Please note:

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.

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