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Finding yourself in your 50s with little/no retirement savings is not ideal. Yet you are not alone. According to one study, nearly 30% of over-50s have no private pension and millions have not saved anything at all. The main mistake many people seem to be making is assuming that their state pension will be sufficient to fund their retirement lifestyle. Unfortunately, for most this will simply not be the case.
Fortunately, there is still time to put a strong plan in motion to start building your pension and moving you towards some realistic retirement goals. Here at Cedar House, our financial advisers offer this short guide on over-50s pension planning to help you gather your thoughts on this important subject. We hope you find this content helpful, and invite you to contact our team here at Cedar House for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
Establish your current position
To start getting a good idea of how much you need to start putting into your pension(s), it’s wise to first get a sense of your current pension provision. For instance, how much state pension are you set to be entitled to? It may be that you have already accrued 20 qualifying years of national insurance contributions (NICs); in which case, you only need 15 more to be entitled to the full new state pension when you reach your state pension age.
However, if you have only accrued, say, 10 years of NICs, then you will likely not receive the full amount when you reach your state pension age (since you may only attain another 15 years, and you need 35 in total). This does not mean that it is impossible to build up your full new state pension, nonetheless. You could work a bit longer and defer your state pension, for instance, or you could consider making voluntary contributions on “incomplete” previous years.
It will also be important to look at any workplace pensions and private pensions you may have. Where are they invested, and how have these performed over the years? Do you have several pots scattered all over the place and, if so, might it make sense to consolidate them for better ease of management? A financial adviser will be able to help you work through these complex issues and arrive at some informed conclusions.
Establish what you need
Once you have a clearer idea of what your pension situation is, you can start to work out how much more you need to save to reach your retirement goals. Here, your annual retirement income will vary depending on your desired lifestyle and expenses. A good starting point is to assume that you will need at least two-thirds of your pre-retirement salary, which in 2020 is about £19,000 (i.e. average UK salary of £29,009 x 0.66).
Most, however, are likely to need much more than this. According to Which?, their research suggests that retired households in 2020 spend at least £2,110 per month on average. Whilst this would require an annual income of around £25,000, some households might need £40,000 or more to afford a more luxurious lifestyle. Given that the new state pension bequeaths about £9,110.40 per year, this means that most over-50s will need to save more to afford retirement.
What kind of pension pot might you need, then, to attain these kinds of annual income figures in retirement? Here, the figures do vary, but as a rough idea, £100,000 in a pension may give you £4000-5000 per year on top of your state pension. So, this can start to give you an idea of what you may need to save by the time you retire. How this translates into your monthly contributions, however, is a tricky task. Unfortunately, those in their 50s will likely need to put more aside each month compared to someone in their 20s, 30s or 40s.
For instance, suppose you wanted to save about £300,000 by the time you retire. If you started saving at the age of 50 for 17 years, then you may need to put aside about £860 a month to attain this figure (assuming 6% annual growth after fees and inflation). This can be mitigated, however, through strategies such as pensions tax relief. In 2020-21, for instance, it only “costs” a higher rate taxpayer 60p to put £1 into their pension pot – since they receive 40% tax relief. For those on the basic rate the relief is 20%.
Conclusion & invitation
Whilst it may feel “too late” to start saving into a pension in your 50s, this is not the case and it is better to start sooner rather than later. The more time your investments have to grow, after all, the larger your pension pot is likely to be by the end of your career.
Don’t miss the opportunity to start planning for your future. If you would like to discuss your financial plan with a member of our team, then get in touch today to arrange a free consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk.