Retirement at 60 is a popular aspiration for those wishing to plan ahead. As you prepare for this life transition, understanding how much you’ll need to maintain your desired lifestyle is essential. It’s also vital to consider practical steps to help you along your journey and what pitfalls to look out for. Here’s a guide to help you get you started on your retirement planning journey.
Assessing your retirement goals
Before diving into financial figures, take time to envision your retirement. It’s useful to ask yourselves some big questions (we’ve noted a couple in our short questionnaire). Will you travel, take up new hobbies, or perhaps downsize your home?
Understanding your lifestyle aspirations will directly influence your financial needs.
How much do you need to retire at 60?
As above, it depends on your personal circumstances and aspirations but an average taken by The Retirement Living Standards suggest a couple needs £59,000 a year for a ‘comfortable’ standard of living, with a single person requiring £43,100. It is therefore concerning that 38% of adults are not on track for even a minimum lifestyle in retirement, according to research from Scottish Widows
Portfolio requirements
To help determine your required portfolio size, you can use the 4% rule. This guideline is based on research that found it’s possible to withdraw 4% of your retirement savings each year without exhausting your funds. Whilst this rule has its flaws, it can be used as a helpful starting point.
A simple calculation is to multiply your annual income need by 25. So, a 60 year old couple retiring today and looking to spend £50,000 a year would need a portfolio of £1,250,000.
If you’re retiring in the future, remember to account for inflation. For example, if you need a portfolio of £1,250,000 and you’re planning to retire in 10 years, the future value of this assuming inflation at 2.5% a year, would be just over £1,600,000. Many online calculators can help with this.
| Annual income need | Portfolio size |
|---|---|
| £30,000 | £750,000 |
| £40,000 | £1,000,000 |
| £50,000 | £1,250,000 |
| £60,000 | £1,500,000 |
Behind the 4% rule
Whilst comprehensive, the study behind the 4% rule was narrow in its focus, considering a portfolio invested in the US with a portfolio balanced with growth (equities) and defensive (bonds) assets. A different investment approach could mean a higher (or lower) withdrawal rate than 4% could be sustained.
Other income
Don’t forget to leave out any other income sources you may have from the calculations. Should you have £15,000 of rental income (for example) and want to spend £50,000 a year, then you only need another £35,000 each year. This brings the portfolio size you may need down to £875,000 (£35,000 x 25 = £875,000).
Other income sources may include: State Pension, interest from savings, dividends and any final salary style pensions.
Other capital
You may have cash ‘tied up’ in a business or property which you hope to sell to help fund retirement at 60. If this capital is realised and available to draw upon, considering a sensible withdrawal rate can help it last.
Developing a retirement income plan
Creating a robust retirement income plan means combining your income sources to achieve your financial goals. Doing this yourself in Excel can be tricky as factors such as one-off gifts, medical expenses, inflation, and investment shocks can be difficult to model.
Here’s where using financial planning software shines. It’s adaptable to different scenarios, helping you model your finances over time, building in countless ‘what-if’ scenarios and assumptions personal to you.
A word on pensions…
Pensions normally make up most if not all a retiree’s portfolio. So, when considering how much income can be taken from a pension, it’s crucial to consider the impact of tax.
Usually, only 25% of the pension can be withdrawn tax-free, with the remaining 75% liable to income tax when it’s taken. This means that if you have a pension of £1,000,000, some will be lost to tax so you don’t have that whole amount to spend. Managing the ongoing tax liability of pension income is a key challenge. Speak to one of the team at Abode Financial Planning for pension advice in Cirencester.
If you have enough to retire at 60
If you believe you’ve saved enough to retire at 60, congratulations! You might feel now is the right time to seek a professional second opinion to check your plan’s viability. Here are some of the things we check:
- Your risk profiles and how your portfolio has fared compared to the wider market
- What a sustainable withdrawal rate is for you
- Is your portfolio competitively charged
- Your tax position
Alongside a retirement review, we provide a holistic financial plan, delving deeper into your financial position.
If you don’t have enough to retire at 60
If your current savings fall short, consider these strategies:
- Save more: Increase contributions to your pension or savings. If you’re still working, check whether your employer can add more to your pension too.
- Delay retirement: Or work part-time. Working just a few additional years can improve your prospects.
- Reduce expenditure: Identify and cut back on non-essential expenses
- Explore better investment returns: Are you getting a good return on your portfolio? Consider higher-risk investments for potentially greater returns (but remember this isn’t guaranteed).
Ensuring financial security
There are different ways to take income from a pension.
Finding the right approach for you depends on your circumstances and there are pros and cons to each. Annuities offer a stable income with limited flexibility whereas drawdown provides more flexibility and potential for growth, but there’s also the risk of depleting your funds too quickly.
Some find that a combination of both options works best. Consulting with a financial adviser can help you strike the right balance for your retirement needs.
Conclusion
Planning for retirement at 60 involves careful consideration of your financial needs, lifestyle preferences, and future uncertainties. By evaluating your goals and understanding your savings needs, you can lay a strong foundation for a fulfilling retirement. If you’re uncertain about your retirement strategy, don’t hesitate to reach out for professional guidance. A tailored financial approach can help you navigate this important phase of your life with confidence and excitement.
Approaching 60? Let’s get you retirement ready! Book an initial call today
Investment risk information
Please note, the value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
This information is for general information only and does not constitute advice. The information is aimed at retail clients only.
Past performance is not necessarily a guide to future performance.
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Abode Financial Advisers is an Independent Financial Advisor in Cirencester.
Abode Financial Advisers is a financial adviser based in Cirencester, Gloucestershire. Abode Financial Planning is an independent financial advice firm offering comprehensive financial planning services, including: independent financial advice, retirement planning, pension advice, investment advice, wealth management, and inheritance tax planning.
If you wish to discuss your situation, contact us for a no-obligation initial call, held at our expense. Call us on 01285 703 060.
Abode Financial Advisers is located at Watermoor Point, Watermoor Road, Cirencester, Gloucestershire, GL7 1LF.