5 Questions To Ask Yourself In 2021
With COVID, Brexit and the US election creating so much turmoil in 2021 everyone should be asking themselves these 5 important questions when it comes to their finances.
I would like to go over each of these in separate blogs and today we will begin with:
Will my pension be enough for retirement?
Retirement can last for 30 years or more depending on when you retire and how long you live. Your income in retirement is likely to come from several sources including your government state pension, any other pensions you’ve built up while working and any savings and investments you have.
How much do people spend in retirement?
A survey of 6,300 UK retirees in 2020 carried out by Which consumer site found that retired couples spent around £2,110 a month per household or around £25,000 a year.
People have spent around 4% to 5% less in 2020 as a result of the coronavirus pandemic. This covers all the basic areas of expenditure (which had a combined cost of £17,200 per year on average) and some luxuries, such as European holidays, hobbies and eating out.
Aiming for this level of income will provide a good platform for your retirement.
They remarked that you would need £40,000 a year if you include luxuries such as long-haul trips and a new car every five years.
Do I have a shortfall in my pensions?
If we take the above example how can we obtain the figure of 25,000 per year?
The state pension is currently £268.50 per week for a couple (if you qualify for it before 6 April 2016). This is equivalent to £13,962 a year, which brings us to more than halfway towards the 25,000 total.
Let’s say you are in the 50% category who will live till 87 and you are taking your retirement at 66 when you will be entitled to the UK state pension.
You will need to fund 21 years of retirement.
A pension pot of 200,000 growing annually at 3% per annum would allow us to withdraw just over 12,000 per year which would make up the shortfall – the pot would run out of money 2 years later.
Note, the above figures do not account for local inflation or taxation so the real figures required will most likely be far higher.
How long will my retirement be?
Most people underestimate how long they’re likely to live.
In the UK 25% of boys born today can expect to live until they are 100.
A 65 year old man now has a 50% chance of living to 87 and a 65 year old woman a 50% chance of living to 90 (Source: ONS 2014, UK).
People are living longer and before you give up work you need to make sure your pension and investments will provide you with enough money to live on for the whole of your retirement.
If you’ve only planned for 21 years in retirement and you live longer than this, you could find yourself struggling financially later in life.
What should I do next?
If you are worried that your pension won’t last or you have yet to start a pension savings programme then you should consider a pension and investment review.
A review is helpful no matter what your time of life – whether you’re close to retirement or still in the saving-up stages. However, to get maximum benefit you should try and arrange one at least 10 to 15 years before your intended retirement date.
Regular check-ups every few years are also advisable, to ensure your plans remain on track.
Your financial advisor will project your likely income from pensions and other assets, and measure these against your retirement goals to see if they are realistic.
If there is a mismatch, you may need to adjust one or the other.
If you are worried about your current retirement savings during this time or would like more information on possible investment opportunities you can take advantage of my free 60-minute consultation by clicking Contact Me Today for an initial informal chat.
I would be happy to review your current financial plan, offer some tips for creating one or answer any questions you might have pertaining to your investments.
Look out for the next blog article which will go over the next important question you should be asking yourself in 2021.
About the author
Colin MacGregor is an independent financial advisor working across Europe for Professional Investment Consultants S.A. (Europe) www.pic-europe.com.
He has over 10 years experience in the advisory sector and currently resides in Prague, Czech Republic.