APPROACHING
When can you afford
to retire?
Many people retire with what they have saved without much understanding of
how much income they will receive.
Unless you are lucky enough to have a final salary
pension scheme, with its defined benefits for life, you
are likely to be faced with a stark choice. I have
retired, I have no more income and I have £X in my
pot. You can buy an annuity (guaranteed income for
life) at retirement, leave it alone, or place it in a flexiaccess drawdown product, which leaves your pot
invested and growing while you sell down your
investments into cash as needed.
The average defined contribution pension pot
contains just £50,000 at retirement. would buy
an annuity income for life of £2,072.
Using flexi-access drawdown improves income to
around £1,264 per month (£316 per week), which is
more helpful.
In summary, spend time accurately working out how
much you need per week or month and use the
Trustnet Direct planners to help you build a retirement
pot that can cover these costs. When you reach your
target pot, then theoretically you can retire, but
remember that if it is earlier than you planned, you will
have to cater for a longer period of retirement.
Be aware that market conditions can increase
or decrease your pension pot once you have
retired
The average DC pension pot in the UK (about
£50,000), coupled with the state pension will
provide a weekly income of just £201
Pot size at
retirement
£100,000
£250,000
£500,000
Annual income
from annuity*
£5,071
£12,720
£24,204
Annual income
from drawdown**
...................................................
Worryingly, anyone with a pension pot of just
£50,000 will be augmenting their £464 state pension
with just £213 per month by buying an annuity.
Combined, £677 per month, or £170 per week, is
going to leave little money left for life’s luxuries.
Work out how much you will need to live on
in retirement, how much you need in your pot
to deliver this and how old you will be when
you reach that target amount
...................................................
With flexi access drawdown, it would provide an
annual income of £4,800, but assumes 5 per cent a
year growth in your assets and that your money will
run out at age 80.
Key points
£9,600
£24,000
£48,000
*Annuity quotes courtesy of Saga.co.uk as at 03.09.15. Based on a male
age 65 , no percentage increase, no guaranteed income and no income to
spouse after death.
**Assumes 5% growth per annum on balance of portfolio in retirement
with money running out at approx. age 80
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