Whether you’ve already hung up your boots, or retirement is something you’re eagerly planning, it’s important to know that you’ll have sufficient funds to make the most of your new found freedom.
Where your money will be directed depends very much on financial commitments including council tax, energy bills, and any dependents you have. Every case is individual.
And, of course, we all have our own expectations of the kind of life we will lead as retirees.
Dream on…
If your dream is to travel the world, you’ll clearly need more than someone who is contented to potter in their garden and read by the fire. How much you will need to live on will also depend very much on where you live, of course. And you may be surprised to learn that – as an average, and based on national incomes and budgets in retirement – the Pensions and Lifetime Savings Association (PLSA) calculates that a single person needs a minimum income of just £10,900 a year to cover their basic needs, eat out once a month, and have one UK holiday a year.
Step that up to what the PLSA calls a “moderate” lifestyle – covering a foreign holiday once a year and more frequent meals out – and you’d need £20,800 a year if you’re single.
A “comfortable” retirement – three foreign holidays a year, regular beauty treatments, TV streaming services etc – costs a singleton £33,600 according to the PLSA.
For couples, we are talking about a minimum income of £16,700, rising to £30,600 for a moderate lifestyle, and £49,700 for a comfortable retirement. These may seem very modest levels of income for many people.
State pensions
With the full state pension currently paying £9,339 a year from the age of 66, it will be a struggle to meet even the most minimal needs of a simple lifestyle without some kind of top-up income.
Most of us will want to top up by quite a bit, in fact to meet our expectations for retirement. But with the cost of living soaring – and set to continue to soar – we could all find ourselves needing to top up far more than we previously imagined.
Even after a lifetime of saving and investing, the average Brit has just under £62,000 in their pension pot according to the Financial Conduct Authority. This would buy an annuity of around £3000 a year from age 67. Added to your State Pension, this makes just over £12,000.
For a more comfortable lifestyle, you'll need to top up more – and Equity Release is a great way to do this if you're lucky enough to be in a position to borrow against your home in this way.
Top it up…
Once you are approved by a lender, you should be able to borrow upwards from 25% of your home's total value in your 60s – and this can be taken as an initial lump sum with a reserve for future drawdowns. If you wish, you can arrange to take small amounts at regular intervals throughout each year – with the advantage that you will only ever pay interest on the money you have borrowed, whether you choose to do that during the lifetime of the loan or have it roll up to be paid on the eventual sale of the property.
When working out the amount you will need to fund the lifestyle you desire, start by looking at your current spending.
Which costs are immovable, and which will no longer be an issue when you retire?
Will the PLSA's averages for a basic, moderate or comfortable lifestyle be enough to meet your needs and expectations?
If your essential outgoings already exceed the PLSA's suggested income rates, Equity Release could give you a more comfortable lifestyle without the requirement to downsize from the home that you love.
To find out more, talk to an equity release adviser. My initial consultation is always free and I will be only too happy to talk to you about your options going forward.
