What income you need in retirement is subjective of course, and largely decided based on the lifestyle you want to lead and the bills you need to pay. What many people don’t know is whether the funds they have been able to build up can deliver what they require or if not, whether they are prepared to “cut their cloth” according to what their funds can deliver. It’s at this point that good advice is vital, because as my granny used to say “there’s more than one way to skin a cat”. I never really understood why you’d want to skin it at all or what the various methods were, but I did recognise the message….!
New data suggests that people turning 65 this year will need a full state pension and a private savings pot of £121,000 to fund a retirement lasting 20 years. That is based on achieving the average annual income people about to retire expect to get, which at present is £15,800, according to Prudential’s ‘Class of 2014′ research.
Life expectancy of 20 years following retirement is the current estimate provided by the Office for National Statistics – but some people will live even longer and therefore need more money.
If you live 25 years after retiring at 65, you will need a private pension pot of £139,000 to reach the average expected income figure, says Prudential. And if you live another 30 years, that rises to £154,000. Prudential is assuming you fund your retirement through a mixture of the full state pension and an income drawdown scheme, which allows you take annual sums out of your pension pot while the rest stays invested. Its figures are based on the expected growth rate of the Prudential PruFund Growth Fund.
Buying an annuity instead would guarantee you an income for life, but rates are poor and take-up has plummeted since ‘pension freedom’ reforms were announced in the Budget last March
Under Chancellor George Osborne’s pension changes, which kick in next April, people will be allowed to access their whole pension pot from age 55 and be given far greater decision-making power over how to spend, save or invest their money.
Vince Smith-Hughes, retirement income expert at Prudential, said its figures underline the importance of making retirement income decisions that address the risk of outliving your savings.
‘If retirees choose to draw income directly from their pension fund, they need to consider if it’s sustainable to take that level of income over an extended number of years. It is also important for people not to overestimate the value of the state pension as a fall back should they exhaust their retirement pot. The state pension alone is well below the income level most people estimate they’ll need for a comfortable retirement.’
Prudential also highlights how average life expectancy varies across the country. Retirees in East Dorset and Harrow in London live the longest on average – another 22.3 years after they turn 65. *
From 6 April, there will be three options available to individuals taking benefits from their money purchase fund for the first time:
- ‘Drawdown’ where pot invested and income is taken. Flexi-access drawdown – this is the new form of income drawdown which will allow individuals to take taxable income from their pension fund with no upper limit
- Annuity- Purchase a lifetime annuity. Under the new rules, lifetime annuities will be able to go down as well as up.
- Full or gradual withdrawal of money which will be taxed as income – Taking one or more lump sums from uncrystallised funds, known as uncrystallised funds pension lump sum (UFPLS).
Individuals will be able to choose any combination of the above. From April 2015, there will be no cap on the amount of money savers can withdraw in a drawdown scheme.
It is imperative you look at all your Retirement Income Options! Contact us NOW on 0191 281 9862 or e-mail firstname.lastname@example.org to arrange a FREE initial appointment
* Read more: http://www.thisismoney.co.uk/money/pensions/article-2728970/Full-state-pension-plus-121k-savings-needed-average-retirement.html#ixzz3UZBsoGze