The UK’s state pension currently kicks in at 66 years old, but it’s set to creep further and further forward starting on 6 May next year.
Living Wage UK says that the pension pot people need to meet their basic requirements has gone up too, “from around £70,000 in 2020-21 to nearly £110,000 in 2023-24”.
But how can you tell when you’re ready to comfortably retire?
Speaking to HuffPost UK, financial advisor Chris Kampitsis from The SKG Team at Barnum Financial Group said that he uses a simple (if intimidating) formula to work out someone’s retirement-readiness, and shared tips on what to do if your savings aren’t anywhere near where they should be.
How can I tell if I’m ready for retirement?
Chris swears by the “rule of 25,” calling it “a helpful starting point to calculate for retirement nest egg goal planning.”
He explains: “If you take the amount of money you believe you will need to annually supplement your social security and other income sources (like pensions or rents) and multiply that number by 25, you will get a lump sum.”
That sum, he says, means you’ll be able to “withdraw the commonly accepted 4% of its value per year, adjusting upwards each year to account for inflation.”
So, “if invested appropriately,” you may “have a high probability of not running out of money in retirement.”
What if I’m nowhere near that?
25 times your annual living expenses is a very, very tall order for some.
Chris advises those years ahead of retirement to take advantage of time: “10 years, 20 or 30 years before you wish to retire is never too soon but if possible no later than five years before your desired retirement date.”
In the meantime, he says, people can try to “spend less (or relocate to a less expensive area/home), work part-time in retirement (any money you are not withdrawing from your portfolio each month truly adds up), or consider, in a high interest rate environment, trading some of your principal for guaranteed income through vehicles such as annuities, etc.”
Speak to a financial advisor about any concerns, he adds.
