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The shocking truth about your pension pot

Planning for retirement can be a daunting task. This is especially the case when determining how much you need in your pension pot for a financially secure retirement. At Willday Wealth Management, we understand this is one of the most critical financial decisions you’ll make in your life. In this article, we’ll look into the factors that influence the size of your pension pot. We’ll look at how far your money can stretch, and suggest strategies to help you achieve your retirement goals.

Understanding your retirement needs

The first step in determining how much you need in your pension pot is to understand your retirement needs. You need to think about what kind of lifestyle you want to have in retirement. Note which essential expenses you’ll still have, and any potential future costs you may incur.

List your day-to-day living costs, your usual household bills including energy, water, council tax, broadband, etc. Also think about the amount you spend on food and transportation, whether that’s fuel or public transport costs. Think about what you spend, or would like to spend in retirement, on travel, hobbies, or dining out. Not how much you usually spend on other non-essentials such as new clothes.

Estimating your pension pot requirements

A widely-used rule-of-thumb for estimating your pension pot requirement is the “25x Rule.” This rule suggests that you need 25 times your annual retirement expenses saved in your pension pot. For example, if you estimate your annual expenses to be £30,000, you would need £750,000 in your pension pot.

Factors affecting your pension pot

State Pension – The UK State Pension provides a basic level of income in retirement. The full State Pension is £221.20 per week (as of April 2024), which is £11,541.90 per year. You may not be entitled to the full State Pension if you have gaps in your National Insurance record. If you want to boost your State Pension, you could make voluntary NI contributions. How much these are and if you are eligible will depend on your individual circumstances.

Workplace pension – Since 2012, many employees are automatically enrolled in workplace pension schemes. Our recent blog post delves into the detail of this scheme to give you a better understanding. The value of your workplace pension depends on your salary, contribution rate, and the length of time you contribute. Your employer will be able to provide details of who the pension provider is. You should receive regular statements from the provider keeping you informed of your pension value.

Additional savings and investments you have outside of your pension schemes will help finance your retirement. This includes regular savings accounts or cash ISAs.

Strategies to boost your pension pot

The earlier you start saving towards your retirement, the more time your investments have to grow. If you are eligible for a workplace pension, ensure you are contributing the maximum amount you are able to. Even increasing your contribution by a small amount could significantly impact your pension pot over time. This is particularly the case if your employer matches your contributions. If you’re also able to pay into a private pension as well, this will further boost your finances.

It’s also important to ensure you have details of each pension provider you have. If you’ve moved jobs since 2012 you could have more than one workplace pension pot. If you’ve moved house in this time, and haven’t informed your providers, you risk your pensions being lost. Our Find My Pension service will locate any missing pensions on your behalf. We’ll then help you consolidate these pensions, if you wish, into one easy-to-manage pot. By reducing the number of individual pension posts, you’ll be able to better assess your retirement funds.

If you are looking to start planning your retirement, including budgeting how much you will need in your pot, we can help. At Willday Wealth Management we are committed to helping your achieve your retirement goals. Contact us today to schedule a consultation with one of our financial experts, and start planning for a brighter retirement.

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