Don’t let retirement calculators put you off, look at all the factors
Since today a 45-year-old man is unlikely to be entitled to a state pension until he is at least 68 years old,Invesco urges people to seriously reconsider their retirement choices.
While the general advice to everyone is to start contributing to a pension plan as soon as possible, the reality is that many of us seem to put off until a point where we think it may be. be too late to do anything.
In addition to the old inertia, there are several plausible reasons for such delays: the cash flow constraints of paying your mortgage, the costs associated with raising and educating your children, and the hustle and bustle of life. in general means setting aside resources to commit to your future retirement can often fall on the priority list. However, it is almost never too late to do something!
Maybe part of the reason people believe they missed the opportunity to fund a pension is the way a typical pension calculator works. Take a 45-year-old man earning € 100,000 per year without having a pension and who aims for a pension of € 50,000 per year at age 65.
A standard pension projection calculator will dictate that they must contribute 70% more of their salary to reach their goal. Contributions as a percentage of salary only get worse if they push them back for a year (or three!). When they turn 50, starting a pension with the goal of achieving the same goal would actually cost them more than they earn. It’s no wonder some of us rely on a Loto windfall to fund our retirement.
However, if we are to encourage those who think it may be too late, we need to think about how to tip the math in our favor and seek to reduce the monthly cash flow burden on our future retiree.
First of all, the state pension was not taken into account in the above calculations. When this is the case, the required contribution level drops to 53.4% for our hypothetical 45-year-old. Still meaningful but a little less intimidating.
The expected retirement age can also be changed to further reduce monthly contribution levels. Although there is currently a political debate on this, it is probably safe to say that a 45-year-old man today will not be entitled to a state pension until he is at least 68 years old. . If he delays his planned retirement from work until that age, the required contribution level drops to 41.4%.
If they pushed a little further and decided to wait until their 70s, the contribution level drops to 35.2%. It may very well be affordable if you factor in the tax breaks. It all depends on the situation of the person concerned.
So far, we have only considered traditional sources of “retirement” income in retirement and how they can be funded. But that’s ignoring the other so-called “pillars” on which many of us base our retirement plans.
The very nature of retirement is constantly in question. Not only are people thinking about retiring later, but they are not planning to retire at all, at least in the medium term. For business owners, this means slowing down over a period of time while handing over some of their responsibilities to family members or other executives. For others, it means taking options part-time, in their current place of employment or perhaps moving into consulting or looking for opportunities elsewhere.
As a certain level of employment income is maintained, the amount to be drawn from a pension decreases, at least during the years of early retirement, and the cash cost today of providing that future income may also. be reduced a little more.
Another element of a potential retirement plan that people often fail to consider is their existing savings and other assets outside of their pension fund. With a combination of retirement income and perhaps some employment income as well as the state contribution, the fourth “pillar” of a successful retirement plan is represented by these non-retirement assets.
For example, a residential investment property that is not currently generating net income because the rent is just enough to cover mortgage payments will look very different in a couple of decades. This property could potentially generate an income of over € 15,000 or € 20,000 per year by then. Again, this would have a big impact on retirement income goals and required monthly contribution levels.
Considering all of these factors, it’s clear that it’s really never too late to start thinking about supplemental income in retirement. Even if only in a small way, the traditional pension can still do a job and make at least some contribution to the overall cost of the lifestyle desired by a retired individual.
However, with such a variety of options to help cover the cost of your retirement lifestyle, it might be difficult to “put it all together” and figure out what the sum of all the available parts is. Understanding how each of the building blocks fit together will go a long way in achieving your goal.
Invesco’s comprehensive WealthPlan ™ service is designed to help our clients proactively navigate their financial futures and ensure their retirement plan is fit for purpose, regardless of its individual elements. Understanding what you have now, what it might look like in the future, and what levers are available to pull if you need a little more, is at least half the battle when it comes to retirement planning.
If you would like to find out how we can help you structure your retirement plan and save for your future, contact me atWhere .