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22-year retirement? You'll need a bigger pot

22-year retirement? You'll need a bigger pot

Category: Pensions

Updated: 23/09/2014
First Published: 23/09/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It's probably fair to say that many of us look forward to our retirement; it's a time to kick off the work boots, put away the briefcase and settle down to some well-earned rest and free time. However, if we all want to enjoy our golden years in style, we may have to start putting more of our hard-earned cash away.

22 golden years

According to research by wealth advisor Towry, the majority of Britons savour the dream of a 22-year retirement. In order to live comfortably, and have the resources to enjoy the free time retirement affords, most estimate that they will need around £25,875 per year (after tax). However, over 22 years, this means that £656,568 of funding, without taking inflation into account, will be needed. That's an awful lot of cash.

While it's true that the state pension will contribute towards some of this total, it will only go so far. For example, a 63-year-old man retiring in 2016 receiving the £144 per week single-tier state pension would only get £164,736 over the 22 years. This would leave a deficit of £491,832, which would need to be funded from pension pots or other savings.

Savings, savings, savings

This figure, admits Andy James, head of retirement planning at Towry, may well "shock some people" as it highlights the importance of stashing away plenty of cash to ensure a comfortable retirement. He points out that: "Those who have planned well for their long-term financial future will be much better placed to choose when they retire, and be confident they have built up savings to last throughout their retirement lifetime."

However, it seems that many UK adults are not feeling confident about their financial plans. Towry's research found that only 27% of workers surveyed felt in control of their finances, while a further 30% of 50-59-year-olds admitted that they needed to start thinking about their finances more. This doesn't bode well for dreams of long and happy retirements.

Building up a pot

If you're heading towards retirement, or if you want to be ahead of the game and get your long-term finances in order, now is the time to establish a financial plan. "A structured plan will allow people to consider financial targets for the future and demonstrate how to achieve them, providing peace of mind and the blueprint for a long and comfortable retirement," said Andy James.

So, how can you line your pension coffers? The key is to start planning early. Even if retirement is a long way off, it's never too early to start thinking about it - it takes time to build up a healthy pension pot, so the sooner you start adding to it, the better. If you're not already in a pension scheme, then make sure you sign up, as joining now will reap benefits later. If you can, it's also a good idea to pay in more than the minimum contribution. It's tempting to use any spare cash you have, but putting it away will bring that comfortable retirement a little closer.

If you can't afford to lock more of your spare cash into a pension scheme, why not find a good savings account instead? ISAs now have an annual tax-free limit of £15,000, so why not take advantage of this and start building a nest egg? You can check out the accounts on offer by looking at our best buy deals.

If retirement is fast approaching, it's not too late to get advice. New pension reforms come into play next year, so exploring your options could help you find a retirement package that suits you. Speak to an adviser, preferably an independent one, to get all the information you need, and then you can sit back safe in the knowledge that you can fully enjoy your work-free years.

What next?

Read our retirement guides to find out your options

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.