How Much Money Do You Need to Retire, and What’s the Best Way to Save?

While you may be a few years away from retiring, it always makes sense to plan ahead. There are all kinds of advice given when it comes to saving money. Some people say you should save half your yearly salary by the time you’re 30, for example! Things don’t always work that way. When you want to save for retirement, you need to consider a variety of different options. It’s all likely to fall on how much you get paid each month, and how much you can feasibly put away for savings.

But how much money do you need to retire? Should you put it all in a pension, or an ISA? There are plenty of questions that are well worth asking. In this quick guide, we will introduce you to everything you need to know when making an informed saving decision. It pays to think about saving for retirement now – as you never know when you might lose access to income for good.

How Much to Save for Retirement

Knowing how much to save for retirement is half the battle, if not most of it. The fact is, many people choose to save more than they actually need. A quick internet search will normally come up with the suggestion of “2/3rds your employed income”.

The fact is, everyone has different needs in retirement. We all tend to slow down a bit more, which means our everyday costs are very likely to change. However, in the early years we are likely to spend more on holidays and extravagances. When you’re no longer working, you need to find a few ways to spend your time well!

Therefore, knowing how much to save for retirement is something everyone struggles with. That’s because it is never an exact science. It will differ from person to person. But what’s the best way to save money for retirement?

Pension Pots

Of course, one of the most popular ways to save for retirement is to pay into a pension. The main benefits of this is that tax relief will normally be added by the government in addition to your own savings and with work place pensions your employer will also contribute. Pensions will only ever be available to you when you retire, which is why it’s the perfect savings tool. The point being that you can’t unlock these savings until age 55 at the moment. That is likely to rise to age 57 in the coming years. Workplace pensions are popular because they are easy to set up and fund. Most employees are automatically enrolled now so you don’t even have to think about it. They work through taking a small amount off your monthly income. This means that you are always paying into your fund, and you don’t have to worry about setting up the contributions yourself.

What does this look like in retirement though? It’s great that you are saving for retirement through your earnings but what income will those savings give you when you need it?

Of course, most of us will benefit from the new state pension too, which will unlock when you reach retirement age of 66, 67 or 68 at the moment depending on your date of birth. Again, the state pension age is likely to rise over the coming years and a lot of people make the mistake of thinking that the state pension alone will provide enough income for them in retirement. What if you plan to retire early? How will you fund your retirement income in the early years?

Finding the best pension plan for your needs and for your retirement projections isn’t always easy. That’s why Milestone Financial Planning is here to help you find the most effective routes towards financial comfort and peace of mind in your retirement years.

Cash ISAs and Savings Accounts

Many people choose to set up savings accounts. These are very easy to manage. You can often set them up with any bank you have a current account with, and can access them online, in branch, via the phone or even through an app. They are also beneficial to some people as they can offer competitive rates of interest, meaning you will make a small amount of money each year simply by having a little cash in your fund.

However, with savings accounts, there is the temptation to withdraw. With pension savings, you know that you won’t be able to unlock your money until you retire. However, there are ISAs and savings accounts out there which will restrict you from withdrawing. Some will even reward you the longer you leave your money in your account. It’s a great way to make sure you keep a nest egg on one side for when you really need it and could form part of a retirement income plan.

Stocks and Shares ISA

Another good way to save for retirement is to invest. A well-diversified stocks and shares portfolio within a tax-free ISA wrapper is a good way of seeking investment growth, particularly in the current climate of low interest rates being offered by the banks. The UK inflation target is currently 2% a year, this means that the value of your money is being constantly eroded at that rate which, over time, can have a significant impact.

At Milestone we will help you select investment funds which are suitable to your goals and your experience in investing. Over the long-term Investing can produce returns that means that the buying power of your money remains despite the constant erosion of inflation.

What’s Right For You?

If you want to save for retirement, it’s great that there are more options open to you now than ever before. However, narrowing down your options isn’t always so simple. That’s why Milestone Financial Planning is here to help you make decisions that fit you and your family’s needs.

There is never too early a time to start saving. Once you stop receiving an income, you are going to need to fall back on some form of financial safety net! If you want to depend on more than the state pension alone, make sure you have an achievable plan in place which can be regularly reviewed to keep you on track. Learn about our financial advisors and call us for advice, or book online for a full consultation.