This article will show you how much you need to retire at 60. It covers:
1. Do you want to retire at 60?
How much do I need to retire at 60?
That’s the question I get asked on an almost daily basis.
To retire at 60 is a goal that many share. It allows you to do the things you always wanted to do but never got round to. Retiring at 60 allows you to enjoy life, whilst you still have your health and fitness.
But how much do you need to retire at 60? What is a good pension pot at 60 and how much income will you receive in retirement?
If you’re thinking about retiring at 60, this article is for you. Not everybody wants to retire early, but anybody can do it. Let me show you how.
2. What is a good pension pot at 60?
When people think about early retirement, they think about pensions. I’m often asked what is a good pension pot at 60?
The average pension pot in the UK is £50,000, but simply knowing what the average pension pot in the UK is doesn’t help you to retire early.
In fact, I would go as far as saying that how much somebody else has in their pension pot is irrelevant at best and a distraction at worst. It has no bearing on whether you have enough to retire early.
The question you should be asking is “much do I need to retire?”
This is a broader question which takes into accounts not only your pensions but your savings and investments too. Not to mention any other incomes you will receive, like the State Pension or any final salary pensions.
At the end of the day, retirement is about having enough income to meet your expenses. It doesn’t matter where that income comes from.
3. How much money do you need to retire at 60?
How much you need to retire at 60 will depend on how much you spend in retirement.
As a general rule of thumb, you need 20 – 25 times your retirement expenses. So, if you spend £30,000 per year, you’ll need £600,000 – £750,000 in pensions, investments and savings.
But it’s not quite that simple. Most people will receive some form of income in retirement, whether that’s a State Pension, final salary pension, rental income or something else entirely.
You’ll need to deduct this any income you receive. So if you receive a State Pension of £8,000 and a final salary pension of £2,000, the actual amount you need is only £20,000.
4. How much income do you need to retire?
How much you spend in retirement will determine how much you need to retire.
If you’re thinking about retiring at 60, this is where you should start. It will help you work out how much you need in pensions and other savings to retire at 60.
The easiest way to work this out is to start from where you are today. If you receive £3,000 per month and have about £1,000 per month leftover, your expenses are probably around £2,000 per month.
Once you know what you spend today, the next question to ask yourself is how this is likely to change once you retire. Will you spend more on travel? Will you spend less on commuting?
To help you get started, I’ve created a free one-page retirement expenses sheet. Completing this will give you an overview of how much you spend in retirement.
If you’re really not sure what you spend, the simplest thing to do is go with the ‘70% rule’. This states that the average retiree requires 70% of their normal working income. So, if you earn £3,00 per month, you’re looking for a retirement income of £2,100 per month.
5. Where will your retirement income come from?
Now that you know what you will spend in retirement, the next question is where will the money come from?
Your income in retirement will come from two places, income and capital:
This is money paid into your bank account every month.
It will include savings interest, dividends, State Pension, rental income and any final salary pensions.
If you’re unsure how much State Pension you will receive, you can get an estimate of your State Pension online.
Bear in mind that different incomes will start at different times. If you’re looking to retire at 60, your State Pension may not be paid until 66 (or 67). Likewise, any final salary pensions may not be payable until 65.
This is money that you have saved up. It will include savings, investments and pensions.
You can withdraw some of your capital each month/year to top up your retirement income.
But you need to be careful. If you withdraw too much, you risk running out of money. If you’re looking to retire at 60, you can withdraw around 4% of your capital each year.
Income & Capital
Whilst income and capital look differently, they serve the same goal – to provide you with an income in retirement. For now, just get a list of all of your different pots, as shown below:
6. How to create a retirement income plan?
Now that you know what you have available, you need to create an income plan for your retirement.
Quite simply, income + capital = your retirement expenses.
You’ll need to create a forecast for your finances. This is where cash flow modelling comes in. It works out how much you spend each year, then overlays this with the income you will receive (and when you will receive it).
The final step is to add your capital. Your cash flow report will show you one of two outcomes, either you have enough money to retire at 60, or you don’t.
7. What if I already have enough to retire?
What are you waiting for?
You’ve worked hard, saved prudently and spent modestly. You’ve now got enough income and capital to retire at 60.
Don’t be like the couple I recently met, who carried on working until they were 65. By completing a cash flow report, I showed them not only could they afford to retire now, but they could have retired at 60 (5 years ago!).
8. What if I don’t have enough to retire?
Don’t worry – you have options available. These include:
…..1. Saving a bit more each year
…..3. Spending a little less each year
…..5. Taking your final salary pensions early
* By taking more investment risk. There is no guarantee that taking more risk will produce a higher investment return.
9. How to retire at 60 without running out of money?
If you want to retire at 60 with the guarantee of never running out of money, you need to purchase an annuity. It’s the only way you can be certain that the income will continue forever.
But the problem is, pension annuities provide very little income. You will need a big pension pot to do this.
Alternatively, you can use a drawdown pension. This allows you to take as much or as little money as you want, when you want. But it’s not without risk, if you withdraw too much you will deplete your pension.
This is where working with an independent financial adviser can help. Regular reviews of your pension can help make sure you don’t run out of money.
10. Annuity vs drawdown – what’s the best option?
Since 2015, people have been free to either purchase an annuity or go into drawdown, but what’s the best option?
An annuity provides a guaranteed income for life. The income you receive either remains the same or can increase over time in line with inflation.
The main benefit of purchasing an annuity is the certainty and security it provides. You will receive an income for as long as you live.
The main drawback of purchasing an annuity is the pitiful income it provides. For example, if you use your £100,000 pension to purchase an annuity at 60, you will receive just £1,800 per year. This assumes that the annuity increases each year and pays your spouse an income if you die.
The other option is to go into income drawdown. This is where you keep your pension pot invested and withdraw money as and when you need it.
The main benefit of a drawdown pension is that you have complete control and flexibility. You can choose to withdraw as little or as much as you like, when you like.
The main drawback of a drawdown pension is that if you withdraw too much, you will run out of money. It’s like a bank account, if you withdraw too much you will eventually have nothing left.
The best option will depend on your personal circumstances.
If you already have enough income to meet your basic needs (food, bills and utilities), you may find that a drawdown pension works well. It can top-up your income, allowing you to enjoy a nice lifestyle. If you run out of money, you’ll still have enough to cover the basics.
If you don’t have enough income to meet the basics, you may want to purchase an annuity. This way you’ll always know that you have enough to cover the essentials.
For many people, a mix and match approach works well. An independent financial adviser can help you work out what the best option is.
11. How can we help you retire at 60?
As independent financial advisers, we’ve helped hundreds of people to successfully retire. We’re experts in retirement planning with specialist retirement qualifications.
By working together, we can show you whether you are on track to retire at 60 or whatever age you decide. If you’re not, we can advise you on the best options available to achieve your retirement goals.
12. Free Retirement Review
To get started, we offer a free retirement planning review.
This looks at where you are today, where you want to be and then creates a retirement plan.
It provides you with a high-level retirement summary, looking at:
✓ Retirement Savings – how much you need to save for retirement
✓ Retirement Date – when you can afford to stop working
✓ Retirement Income – how much you can spend in retirement
As ever, if you want a helping hand, feel free to drop me a line.
All the best,
James Mackay, Independent Financial Adviser in Bristol
Financial Advisor Bristol and Pension Advisor Clifton
About us: Frazer James Financial Advisers is a financial advisor, based in Clifton, Bristol. As an independent financial adviser, we’re able to provide independent and unbiased financial advice. We provide independent financial advice, pension advice, investment advice, inheritance tax planning and insurance advice.
Frazer James Financial Advisers is located at Square Works, 17 – 18 Berkeley Square, Bristol, BS8 1HB.
This article provides information about investing, but not personal advice. If you’re not sure which investments are right for you, please request advice.
Remember that investments can go up and down in value, you may get back less than you put in.