Updated: Oct 31, 2022
Our financial coach, Rebecca, hosted an invaluable workshop on retiring stress-free a few weeks ago (August 16, 2022). Below are some highlights from the workshop in written form. Please note: although broad pension concepts can be applied mostly globally, ISAs are exclusive to the United Kingdom.
Takeaway One: “How Much Do I Need To Retire?” Is a Personal Question
Everyone's expectations of retirement vary. Individuals’ saving rates are different; it relates to how much people want to compromise their current lifestyle in order to fund their retirement. One needs to ask themselves certain questions, such as:
“At what age do I want to retire?”
The age at which one would like to retire depends on numerous factors. Firstly, the working intensity during retirement; do you anticipate working maybe part time initially? Do you think you're going to want to go from finishing work on a Friday and full-time employment? So fully retired on Monday? Not looking back? Is it going to be after a certain life event? All of these questions relate to understanding your desired retirement’s work arrangement better. Secondly, it depends on your career. Successful entrepreneurs, for example, retire earlier because they have generated enough cash from the sale of their business. Finally, the age at which you want to retire will depend on your preferred working duration and lifestyle.
“What type of lifestyle do I want during retirement?”
This question is important because it will determine how much capital one needs to retire at their preferred comfort level. What one wants their retirement to feel like and look like is completely personal; Do you anticipate moving to a country where actually the cost of living might be a lot cheaper? Do you want a large house? These are all sub-questions to ask.
“Which large expenses do I have left to pay off?”
Any large expenses outstanding will highly affect numerous retirement variables: when to retire, how much money will be remaining when retiring, inter alia. Many individuals retire after they have paid off a mortgage. Understanding any significant purchases ahead of time helps individuals plan for their retirement effectively.
Takeaway Two: Pension Contributions are Crucial
A pension forecast suggests the power of one’s contributions to their pension.
As this chart below suggests, using purely savings to fund a retirement is quite unrealistic.
However, contributing part of one’s expenses and savings - £150 per month, to be exact – yields significant contributions to one’s pension significantly and increases bank balance for retirement.
Of course, if the monthly pension contributions double to £300 per month, the retirement pot increases by almost five years.
Therefore, it is crucial to take advantage of the untaxed pension contributions. It provides a comfortable cushion; in some cases, one’s pension pot alone can fund that person’s entire retirement period.
Takeaway Three: Pensions and ISA Differ in Various Ways
When choosing between investing in a pension account or an S&S ISA, it comes down to one’s personal preference around their retirement preferences. For instance, if someone would like to take mini retirements whereby, he or she retires for a few years at a time periodically, an S&S ISA would be better due to its flexible access to funds. Overall, both methods are perfectly viable.
Otto’s Services provide information and guidance only, not advice or recommendations. “Otto’s Services provide information and guidance only, not advice or recommendations. In short, we'll tell you what you could do, not what you should do. Before taking any action, make sure you are comfortable and understand the risks. If unsure, seek financial advice”. In short, we'll tell you what you could do, not what you should do. Before taking any action, make sure you are comfortable and understand the risks. If unsure, seek financial advice.