Saving for retirement: Are you financially prepared?

POSTED: 26th August 2015
IN: Personal Guides

According to investment fund managers, Fidelity, UK citizens need just over £14,000 a year after tax to cover basic living costs in retirement.

And to maintain a similar standard of living during retirement as in work, the government predicts that the annual income needs to be representative of approximately two-thirds of their final salary. 

With the average British wage currently standing at £26,500, individuals would need an income of roughly £17,667 per annum during retirement. Those living 20 years following retirement would need £353,340 in total. However, from April 2016, pensioners will receive just £151.25 each week in state pension; an annual total of just £7,865.

Enjoying retirement

Despite this financial gap, many workers have plans to spend during their retirement. According to AXA Self Investor, 17 per cent of UK citizens want to move to a nice house in the country during retirement while 27 per cent want to be able to spend money on their grandchildren. 43 per cent hope to travel.

On top of that retirees also want to keep their annual two-week holiday which costs approx. £1,500 per annum. They also wish to continue dining out once a fortnight which adds a further £2,000 per year, and health club membership adds £500 each year meaning many retirees in the future will need to secure a higher than average annual income.

The infographic below looks at the cost of retirement:

So how can savers build up enough cash for retirement?

By planning ahead and allowing sufficient time to save, it is possible for individuals to build a substantial pension pot. Saving alone can be a challenge and, as a result, many people choose to seek assistance from their employers through workplace pension schemes. Others could use high-interest personal savings accounts, invest in property or stocks and shares to grow their savings.

The list below looks at the key features of various retirement savings options: 

SIPPs (Self Invested Personal Pension)

  • A SIPP holds investments until you retire and start to withdraw a retirement income
  • Your investments are managed for you within the pooled fund you have chosen
  • You’ll have the freedom to choose and manage your own investments
  • Access age: 55
  • Tax relief dependent on salary tax bracket

Workplace Pensions

  • A tax-free pot of cash that you, your employer and the Government pays into
  • Selected and arranged by your employer. Your contribution is taken direct from your wage every month
  • Your employer will make the investment decisions (and risks) needed to reach the scheme’s target
  • At retirement, you can draw money from your pot or sell the cash to an insurance company in return for a regular income until death (an ‘annuity’)
  • Access age: 55
  • Tax relief dependent on salary tax bracket

Stocks & Shares Dividend Income 

  • Investment in dividend-paying stocks, so that the portfolio is made up of companies that provide a steady stream of income 
  • You are responsible for selecting where money is invested
  • You are responsible for selecting where money is invested

Personal Savings

  • Putting money aside into a savings or ISA account
  • You are responsible for determining how much to set aside and ensuring the money is transferred
  • The return depends on the interest rate paid out on your selected account

Property Investment – Rental Income

  • This is the use of equity from the sale of a home or income from one or more buy-to-let investment 
  • According to a 2013 survey, one in three savers were relying on property to help provide retirement income

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