How to become Rich: Reaching retirement

Build wealth in retirement?

If this is the first article that you're reading in the How to become Rich series then I encourage you to go back and read The Basics first.

The person that fits into this category has few or no dependants, is earning the most that they will earn in their lifetime, has paid or is nearing finishing paying their mortgage. This is a crucial time when you should be very concerned with how you are going to fund your lifestyle once you've  ceased working.

Pension key

If you are at this stage and haven't yet thought about how or when you are going to retire then I really hope this article gets you to take some decisive action. It is clear that the UK, as is the same with most countries in the developed world is facing a serious pension crisis. The demographics of these countries are top heavy with more and more people reaching retirement age but with a birthrate declining such that the number of retirees is outstripping the number if those who can care for them. Nowadays you cannot retire and expect to rely on the state. It is time to start to take some control over your future finances. Starting a pension is your first point of call. Since you are middle aged and not too far from retirement thus you may find that you will need to put in large amounts. 

How much should I put in my pension?

This is a common question when the subject of pensions arises. The simple (and annoying) answer is that it all depends in your individual needs. How much would you like you pension to pay per annum? 

The amount your annuity pays depends on all sorts of factors but as a rough rule of thumb, for every. £100,000 in your pension you should be able to receive about £6,000 per annum. You must work backwards. If you have calculated that when you retire you will probably spend the following:

£3,000 food

£2,000 going out

£2,000 repairs and maintenance

£2,500 travel costs

£2,500 bills, TV and Internet

£3,000 holidays

£2,000 entertainment

£4,000 shopping

£3,000 miscellaneous costs/ emergencies

In total this person will probably need about £24,000 in income. As such, they will need to save over £400,000 in a pension. If you would like any specific advice on saving for your pension then please feel free to get in touch. Please note that I am not a qualified professional advisor, nor legal professional. However, I may be able to point you in the right direction if you have any specific questions.

I don't have many years left until retirement so what do I do?

Let us say that you only have 10 years until retirement and that your pension pot is currently zero. There are a number of options open to you :

1) you must transfer as much money into your pension pot as possible

2) remember that currently your state pension is about £6,000 per annum and as such you may not need to save as much as you originally thought

3) do you have savings that you can transfer into your pension as a lump sum? Remember that the maximum you can put into a pension each year is the lower of your annual income and £50,000

4) can you earn money now, elsewhere, so that you can put more in a pension? 

5) does your employer have a pension scheme whereby they match your contribution? You should be utilizing this facility as much as you can

6) could you downsize now, placing the excess profits into your pension?

7) you may have to face up to the fact that you're going to have to work for longer than you intended

Remember that retirement is all about planning. Whatever age you are (even if you've just left school) you cannot bury your head in the sand. You need to be putting money away now for your retirement.

Do not expect to rely on anybody else. Rely on yourself!

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