Have you thought about your future? When was the last time? Where do you want to live? What countries do you want to travel to? Who do you want to enjoy your time with? We spend so much of our lives working, many of us don’t even spare a thought for the years ahead. However much time you have on this Earth, you want to make sure that you don’t struggle for cash in your twilight years. You might even want to consider leaving a little something behind when you are gone. For loved ones and future grandchildren perhaps? Whatever you see in your future, you want to be safe, secure and enjoy your life after years of hard graft. Many of us ask ourselves how much pension do I need to live comfortably? Let’s look at what you can do to figure that out and start keeping an eye on the future, starting today.
What Is A Pension?
The first thing to establish is, what exactly is a pension. A pension, in its simplest term, is a way of saving for your retirement years. When you don’t have a job anymore. When you have stepped away from the office, from that career and have stopped working, you will still need to pay for things. You might have even more to pay for if you have specific things you want to do when you retire. Life is for living after all!
The UK has a state pension that you will be entitled to, should you have 30 years of qualifying National Insurance payments. At the time of writing this, that would give you £137.60 per week if you were claiming the basic state pension. Those who qualify for the new state pension would get £179.60 each week, paid every four weeks.
It is possible to start your own pension though, or have a pension plan via your employer. We’ll get onto this below however it is important to say that these are tax efficient ways of saving for your future. This comes from tax relief from the Government on whatever you put into the fund. There are limits on what you can save and it’s worth noting that these type of pensions are usually invested into stocks and shares. So even though you put money in, you might get less out.
The new state pension might cover you for basic living, as it works out at £9339.20 per year. If there are two of you, you might be able to enjoy a nice standard of living on the combined amount. However many people will want more than that. This is where workplace pensions can come into play.
Workplace Pensions & Contributions
If you are employed, you should be able to pay into a workplace pension. This is hugely beneficial as when you pay in, your employer pays in too. This is a legal obligation nowadays and helps your pension boost with every payment. With a percentage of your pay being paid into your workplace pension every month and the added bonus of your employer topping it up too, it makes sense to plan for the future this way. The tax relief is a huge bonus that you cannot afford to avoid on top of this.
Some people think that it is not worth paying into a workplace pension because they don’t intend to stay in that job for long. However, if you do leave, that money still belongs to you. If you don’t continue to pay into it, it will stay invested and simply become yours when you reach the scheme’s pension age.
If you don’t already know what your employer pension contributions are, check your employment contract to see how much your employer pays into your pension, and what you are currently paying into it. It might turn out to be more than you think!
You might also be interested in reading: What is a good employer pension contribution?
What If That Simply Isn’t Enough?
A state pension and workplace pension combination might not be enough to keep you in the lifestyle you have become accustomed to and wish to enjoy. Perhaps you want to invest your money with a little more risk, to try and turn it into a higher amount. It could be the case of having a safer pension pot at work and then having a fund which can potentially perform better privately. Maybe you don’t have an employed job or a role where a workplace pension comes into play.
Of course, there are people who only have the option of a personal pension as well as those who are looking to invest extra money for their future. For those self employed people a personal pension is a great option when you are answering the question of “how much pension do I need to live comfortably?”
You might also be interested in reading: How much should you contribute to your pension in your 20s?
Personal pensions are pension schemes that you look into, research and open for yourself. These can be ideal if you have a freelance job, work for yourself or simply want to have a bit more control. It is worth noting that some employers offer personal pensions alongside workplace pensions.
How much control you want over your personal pensions is up to you. You can pick the plan that is right for your situation, taking into account the amount of risk you want to put on that investment. You can also specify the types of investments you want. For example, some might wish to avoid investing in fossil fuels. A Shariah pension plan would avoid investing in alcohol, tobacco and other areas.
The pension company then invests on your behalf, taking an annual fee. Alternatively you can be more hands on and look at SIPPs (self invested personal pensions) where you control the investments that make up your pension fund. Personal pensions will pay out when you retire, depending on how much you have paid in, how the investments have performed. Remember, these could go up or down!
Do you need personalised advice? Speak to a financial advisor who will be able to help you put together a plan for your pension.
The Earlier You Start Paying In, The Better
The earlier you start to pay into your pension, the better. When you start to make pension contributions earlier on in your life, you can take advantage of compound interest. Small savings earlier in life, can be more significant than larger contributions later on. An example of this is starting to save at the age of 25. If you wanted to retire 40 years later with £19k a year you’d need to save about £480 each month. If you wait another ten years until you are 35 to start saving, the monthly amount rises to over £700. This illustrates the benefits of starting to pay into a pension from an earlier age. The sooner the better, if you can afford to do so of course. You could even start a pension for your children if you wanted to. Take a look at our guide to how much you should have in your pension at 30 years old.
Combine Your Pensions
How many jobs have you had? Did any of them offer a pension plan that you started paying into? Maybe you have forgotten all about them because they are decades old. Do you think you have pensions scattered all over the place? Well now you can trace and combine all those old pensions into one single, solitary and simple pension.
By signing up with PensionBee you can easily manage your pensions in one place. They even have an app. No more having to figure out all those different locations. Pull them all into one pot and you can see exactly what financial situation you are in for the future. When you have access to the BeeHive you’ll be able to make flexible contributions and they’ll automatically claim your 25% tax top up from HMRC.
PensionBee is making pensions easy to understand and even easier to pay into at the click of a button. They even have a range of plans to suit everybody. These include tracker, tailored and fossil fuel free plans for those looking at a sustainable and ethical future. There are also tools that you can use to plan for your retirement, such as the pension calculator which does all the heavy lifting of the numbers for you. If you are looking for a one stop shop for your pensions where you’ll also benefit from one simple annual fee, you need to check out PensionBee.
Figure Out How Much You Are Going To Need
This is the step, perhaps one of the most important, where you are going to figure out what your pension goals are. How much pension do I need to live comfortably? What are you going to want to receive every year from your pension pot in order to live the life you want once you retire?
Use the pension calculator tools available to figure out what you are going to need to put away every month. Then start doing it. Actually begin. If the amount you need to put away every month to reach your desired retirement figure seems a lot now, it will increase year upon year if you do not start putting money away. We don’t want to work hard for 40 years to find out that we actually cannot afford to retire.
You Might Need More Than You Think
We all have dreams and ambitions. However it might be a stretch to reach the pension pot goals that you aspire to. In which case, you might need to rethink your ideas. Maybe cut back to just one holiday a year,. Furthermore, realise that your children will be supporting themselves once you are at retirement age and might not need a lump sum when you die. Realistically, you want to be able to continue living how you have been, with the occasional treat and perhaps a once-in-a-lifetime trip.
What Happens If You Die?
This is a common question and one that can keep people up at night. What happens to the cash you have put into your pension, should you die? You need to ask your pension provider if you can nominate someone to get money from your pension should you pass. There might be certain rules to check, including money only going to a dependent, what the person can actually receive and if there is anything that would affect how much they could get. The individual receiving the money may have to pay tax on the cash as well. It’s worth having someone that your investments can go to, but check that everything is organised properly.
Consider Other Forms of Income
Pensions are a wonderful way to save for your future. However they are not the only way. When you are asking the question of “how much pension do I need to live comfortably? you might consider other ways of saving too. Some people think of buying property which they can rent out now to pay the mortgage and then sell it on when they are older, for a lump sum that they can enjoy.
You could look into ISAs as well as stocks and shares. Maybe you could start your own business which you could then sell on when you reach retirement age. Some of us buy classic cars and keep them in pristine order. Others consider rental apartments abroad which they can earn money from now and when they retire too. There are several different forms of saving for your future that you can consider.
There is no set amount that you need to save in order to have a comfortable retirement. One person who asks “how much pension do I need to live comfortably?” might need more or less than the next person. The bottom line is that everyone has a different definition of comfortable. For your next door neighbour, an annual cruise and three weeks away twice a year might be their level of comfort. For someone else, downsizing to a property requiring less maintenance is what they want from their retirement.
Others want different things which could include moving closer to family, taking up a new hobby or simply walking the dog every day before a pint in the pub. When you figure out what you want from your retirement, you can start to put money away which will help you pay the bills and fund those desires. It is worth looking into your retirement fund options and starting to squirrel a little bit away. Ask yourself now, the question of “how much pension do I need to live comfortably?” Your future self will thank you for it!