At what level are you comfortable with your pension savings?
According to a new report, those seeking a comfortable lifestyle in retirement should aim to create a pension income of £15,000 a year.
The National Employment Savings Trust (Nest) says that once people reach this income level in retirement, they feel more comfortable and more financially secure.
They also found there is no happiness benefit associated with a pension income above £40,000 a year. These figures include State pension income.
This suggests that a pension income of at least £15,000 a year is necessary to provide financial security in later life, and that there is little sense in building pension assets to generate an income in excess of £40,000 a year.
What nonsense.
The level of pension income we each need in retirement to feel ‘comfortable’ and ‘financially secure’ depends entirely on the lifestyle we want or need to lead.
For some people, a pension income of £15,000 a year (when combined with other sources of income or capital) is sufficient.
For others, significantly higher levels of pension income will be needed in order to satisfy financial goals and objectives.
One of the services we provide is working with clients to help determine a suitable target level of income in retirement; there is no ‘finger in the air’ approach here, but detailed calculations to find the individual number which fits.
It’s also important to note that a comfortable income level will often vary during later life, with different income and capital requirements at different stages of the retirement journey.
Lifetime cash flow forecasting tools help us determine a suitable level of wealth, which can include pension assets, to ensure our clients never run out of money during their lifetimes.
Some assumptions about future income, price inflation, interest rates and investment returns needs to be made, which makes reviewing these forecasts on a regular basis very important in order to stay on track.
Research like this from The National Employment Savings Trust is useful to raise awareness of the need to plan for retirement, as long as people do not read the findings and fall into a false sense of security based on sweeping generalisations.
Always plan based on your own circumstances, not the findings of research reports.
