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As financial advisers in Liverpool, we get asked regularly: “how much money do I need to retire at 60?” It’s a common goal for people particularly in the later stages of their careers. Yet it does raise a host of other questions. Why age 60 as a target, and not another age? What kind of pension pot do you need to achieve that goal, and are you on track with your current savings?
In this article, our Liverpool-based financial planning team at Hanson Financial Services offers answers to these important questions. We hope the information here inspires and informs your thinking as you start thinking about your own case. To get solid answers on the latter, moreover, we invite you to contact us to book a free, no-commitment consultation (details below).
The UK pension landscape
To realistically have a chance of retiring at 60, you first need to grasp how different types of UK pension work. There are three main types of pension relevant here – your state pension, your workplace and any personal pensions.
In 2020-21, the former only starts granting you an income once you reach your state pension age (67 by 2028). Assuming you have at least 35 years of qualifying NICs (national insurance contributions) and meet all conditions, this entitles you to £9,110.40. However, if you intend to retire at 60, you will need to find other income to support you in the 7+ years meanwhile.
Workplace and private/personal pensions can be accessed from age 55 via the 2015 Pension Freedoms rules. This is good news for people looking to retire at 60! However, there are important factors to bear in mind, including:
- The Money Purchase Annual Allowance (MPAA). Once you start taking an income from a defined contribution pension scheme, you trigger the MPAA rules. This lowers the amount you can put into your pension(s) each year whilst receiving tax relief on the contributions. Remember this, for instance, if you plan on continuing to work (e.g. part-time) after age 55 whilst also taking some income from your pension.
- Final salary / defined benefit pensions. These are special workplace pensions where your employer promises you a guaranteed retirement income. These cannot usually be accessed from age 55, despite the attractive benefits they often offer. Some schemes, however, may let you take a reduced income early under certain conditions.
How much to retire at 60?
To answer this question, it’s key to forecast your essential and “luxury” spending in retirement. This will be different for everybody depending on your circumstances and desired lifestyle. For instance, if you plan on renting throughout retirement, then you may need more to cover this cost compared to someone who has paid off their mortgage by age 60.
Forecasting is difficult on your own, as there are so many factors to take into account. Inflation, for instance, will erode the “spending power” of your savings over time – as will investment fees and taxes. A financial planner can be of great help here by bringing specialist software, skills, experience and qualifications to the process.
A good starting point is to assume you need at least 20-25 times your retirement expenses. So, if you plan to spend £20,000 per year, you may need £400,000-£500,000 in savings, pensions and investments. However, for someone looking to retire at 60, you might conceivably live for another 30-40 years. As such, you could need as much as 40 times your retirement expenses. Therefore, to spend £20,000 per year, this could mean having £800,000 under your belt.
These figures may seem to settle the matter, but the picture is often complex. In particular, you will need to factor in other income you are likely to receive in retirement.
For instance, suppose you are entitled to the full new state pension (£9,110.40 pa) and a final salary pension (£2,000 pa) from age 67. From this age, you may only need other income and pensions which equate to £8,889.6 pa if your target is £20,000. From age 60, moreover, you may have other sources of income to support you until these income streams become available – such as rental income from properties you own. Across this whole timeline, however, you will need to factor in how taxes, inflation, investment growth, fees and more could affect how much you need to save to retire at 60.
As you can start to see, answering the question “how much do I need to retire at 60?” does not hold a straightforward answer! Yet it is possible to craft a plan for your unique financial goals, needs and circumstances with the help of a qualified professional. Here at Hanson Financial Services, we would love to offer you that assistance.
Are you interested in talking to a financial adviser about your pension and investment planning needs? We’d love to assist you here at Hanson Financial Services.
Please contact us to arrange a consultation with our team – free and without obligation – to gain more clarity and peace of mind over your financial plan.
You can call us on:
Liverpool Office: 0151 708 7616
Manchester Office: 0161 401 0991
Chester Office: 01244 960 039Or email via: [email protected]