As financial advisers, this is the question we get asked more than any other! The majority of people would agree that a lottery win of a million would be very nice indeed. However, some would argue that a million just wouldn’t be enough.
The sum of money that would be enough to just get by would be hugely different to the amount of money required to live an extravagant lifestyle. So, we have attempted to break the question down into various components below.
If you only want to get by in retirement, you would simply need a little more money available than your monthly spending every month. Any extra cash would, of course, be welcome for emergencies and it would be recommended to always have a savings pot of around 3 month’s expenses. But you must ask yourself if this lifestyle would be enough to satisfy you. You wouldn’t be blamed for feeling a little hard done by, especially as we usually spend the most money when we have the time on our hands to do so, and most people have lots of time in retirement to do what they want with!
Let us assume that the very definition of comfortable is the feeling of being financially secure and that your state of mind would be free from any financial stress and you were able to afford anything you needed and the bulk of the things you wanted. How much money would you consider enough to enable you to enjoy this state of well-being? Well, the numbers themselves are less important than you would think. This is because many people with good incomes in retirement could find themselves merely getting by due to a high-maintenance lifestyle. To be comfortable, what you may need is to have income well above your level of your expenditure, with some savings to act as a safety net for emergencies.
Retirement is the act of stopping work. Which is what you do – perhaps temporarily – when you take a holiday. Retirement could therefore be interpreted as the longest holiday of your life. What would that look like for you and how much money would be enough to sustain you? This is different for everyone and some people want to travel every other month and some people prefer to stay at home. Furthermore, some people may not have an extravagant lifestyle and enjoy the simple pleasures that do not cost a lot of money. What is really important is that you plan and think about what you want for your future. Try not to think about retirement as stopping work. Think of it as having a second life. One that you can choose how to enjoy and spend your time. Visualise what you would do each day and what you may want to do that you don’t currently have the time or amount of annual leave to do. Write this list down and begin to create a “bucket list”. It could be simple things like take up a new hobby, paint a picture or visit a relative you have not seen for a while. It could be take a month long holiday or travel for 6 months. Whatever it is remember that we only have one life and you are in control of how you live that life! Financial freedom will ensure that you paint your own picture!
What about leaving an inheritance?
In addition to the worry of having enough to live comfortably in retirement, most of us would like to leave something to our loved ones when we die. Thought should be given about the death benefits that you have within your existing schemes. You need to ensure you understand what happens to any benefits or pensions once you have died. Does your spouse receive half of the income or does it die with you? Will they receive the full value of your pension? Will they have enough funds to live on? Assets such as property, investments and savings need to be taken into account. Do you want to leave monies for your children? Of course, inheritance tax could make a significant dent in whatever you left for behind, so planning for inheritance tax would be essential, especially if you have significant wealth.
This article is for information purposes only and does not constitute as advice or recommendations. Please do not act based on anything you might read in this article. All content is based on our understanding of current legislation which is subject to change.