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Can You Afford To Retire?

Can you afford to retire?

Retirement is often seen as a period of celebrating your golden years. With no need to work, you can focus on your hobbies, family, and passions. Sounds ideal, doesn’t it? But the sad fact of the matter is that retirement can be very expensive. It can be difficult to plan for, as no one knows exactly how long they will live for or what sorts of health issues they may encounter in their older age.

Retiring too soon means that you may run out of savings and may have to depend on family members, making you feel like a burden. But how do you know how much money you need in order to retire comfortably? There are ways to come up with an approximate amount on which you’ll be able to retire comfortably.

‘Can you afford to retire?’ is quite a serious question that many older people in the working world are probably asking themselves. But the answer is really not that straightforward.

In this article, we aim to answer some of your questions about retirement and how to know when you can realistically afford to retire.

Start saving as soon as you can

If you are a young person reading this article, it is always a good idea to start saving for retirement as soon as possible. The more savings you have when looking to retire, the more options you have available to you, and you will thank your younger self for being responsible with money!

If your retirement years are still a long way off, you may have no idea the type of costs that you can expect to encounter, but this doesn’t matter. Every little bit that you put into your savings will add up over the years. If you can’t afford to put much away in the beginning, don’t worry about it. As time moves on, you’ll probably start earning more and will thus be able to put more savings away. Look at saving a percentage of your salary each month in a separate account and have the discipline not to touch it.

If you are not that young and are only just starting to save towards your pension later in your working life, you may be rather disappointed that you started so late. But the good thing is that now you will have a clearer idea of the amount that you’ll need to save towards it. Hopefully, you will have also built up a few assets along the way, such as a home, car, shares etc.

Let’s look at your needs

When trying to ascertain how much you will need to retire, you’ll need to look closely at your particular needs. The financial commitments that you currently have are unlikely to disappear during your retirement years. By taking your lifestyle and expenses into consideration, you’ll be able to determine how much you’ll need for each month of your retirement.

Here are a few factors that you should think about when coming up with the amount you’ll need each month as a retired person:

  • Home costs – If you own your home, your mortgage is something that you will need to budget for, as well as your rates (lights, water, refuse, etc.). If you don’t own your home, you will still need to pay rent once you have retired, although you may want to consider moving into a slightly smaller home upon retirement for lower maintenance costs.
  • Debt – If you have accumulated any sort of debt over the years, you’re going to want to ensure that you have enough money to pay off these debts. It would be advisable to pay off these debts before you retire.
  • Transport costs – Are you still paying off your car? Keep these payments in mind. Remember that you’ll also still need money for petrol. If you don’t own a car, try to work out how much you spend on public transport each month, excluding your trips to and from work.
  • Food – Food is one of the biggest expenses, but your usual expenditure on groceries should be relatively easy to work out if you simply keep track of your grocery bills for a few months.
  • Health expenses – Are there any medical bills you need to pay each month that are not covered by the NHS or your medical insurance? Make sure that you calculate these into your budget.
  • Debit orders – What about all of the bills that automatically go off at the end of the month? This could include your cell phone bill, insurance, and others.
  • Pets – Pets can make fantastic companions in your later years, but pets do come with their own expenses that you should work into your pension budget.
  • Lifestyle expenses – You don’t want your retirement to be boring! On top of the necessities, you may want to factor in going out to eat, hobbies, holidays, birthday parties, and more. While you needn’t be extravagant, you should have an amount that you can use to spoil yourself and those who you love.
  • Dependents expenses – Do you have any dependents? Will they still be dependent on you in your retirement? Then you’ll need to calculate their expenses and take them into account too.

From the above list you’ll be able to work out the approximate amount of how much you will need for each month of your retirement. Times this amount by 12, and you’ll have the amount that you will need for each year of your retirement. Let’s keep inflation in mind too, as well as have an emergency fund should any emergencies arise.

How much do I need to retire at 60?

While no one can determine exactly how long they will live for, if you plan to retire at 60, you can expect to enjoy retirement for around 20 to 25 years. It is always better to plan for longer than expected so that you do not run out of money.

Now all you need to do is calculate the amount you need per year and times it by 20 to figure out how much money you’ll need to see you through. If you need £30,000 per year for your retirement, you will require between £600,000 – £750,000 in pensions, investments and savings to see you through your retirement years.

Now it is time to talk about other ways, besides saving, in which you can have access to money during retirement.

What are retirement annuities?

Purchasing a retirement annuity is a very popular option, especially for freelancers, business owners, and those who are not eligible for state pension funds. An annuity provides you with a guaranteed income and allows you to retire at 60.

While annuities have many benefits, the income that they provide you during your retirement is usually quite meagre, and you’ll most likely need a big pension pot if you want to live comfortably.

There are many different types of annuities available, and it is best to speak to a professional financial advisor should you be interested in this option.

What is income drawdown?

An income drawdown is a situation in which you keep your pension pot invested and then withdraw money from it whenever you need it.

The reason that many people are attracted to this option is the fact that you have full control over your finances and can withdraw whenever you feel like it.

But this is often not ideal as you can very quickly end up drawing out too much, causing you to run out of money.

Workplace pension schemes in the UK

Since 2012, it has been a requirement in the UK for employers to enrol their employees into a pension scheme and make contributions on their behalf.

If you have been employed at any time since then, you will have had money put into a pension scheme, which you can claim through the government once you retire.

Most people in the UK qualify for State pension, but the amount that you receive will also depend on your national insurance contributions over the years.

Other sources of income during your retirement

It is important that you do not rely on your pension alone if you want to retire comfortably. This is why it is important to acquire assets throughout your lifetime. Some of the other sources of income that you could receive during your retirement include:

  • Renting out properties you own
  • Your personal savings
  • Investments
  • Royalties
  • Part-time work

By using a variety of income sources for your retired years, you’ll be able to live more comfortably and not have the stress of having to rely solely on one source of income.

Beware of pension scams

Unfortunately, there have been a variety of pension scams going around the UK for the past several years. In these scams, scammers offer fake investments to those planning their retirement and essentially con them out of their money. These scams can be extremely convincing, so please be careful when making any investments regarding your retirement.


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