Create a pension fund that will generate you a sustainable income
In order to create a pension fund that will be sufficient when you retire, you need to understand how much you need to accumulate. A simple calculation you can use to start with is (desired income x 10 x 2). For example if you wish to have an income of 50,000 when you retire you will need a pension fund of 1,000,000. This is based on you drawing an income of 5% from your pension. However, this does not take into account inflation and is only an estimate. If you are 40 years of age and wish to retire at 55 this 1,000,000 increases to 1,413,638.56.
Once you have worked out “your number” you know how much you need to accumulate. The next step is how to make your pension go further and last for as long as you live.
How to make your pension last
We highly recommend that you invest your pension capital in a cautious and sustainable manner rather than be completely risk averse and remain in cash. If you decide to remain in cash, both inflation and your income drawdown will rapidly deplete your pension fund.
The concept is simple. You should try and live off the growth your pension generates. This will ensure your pension fund remains intact and is able to produce an income for as long as you live. in addition it enables you to preserve your legacy and pass on this wealth to your nominated beneficiaries or ensures you have capital available should you require long term care. Depending on the cost of your care, you may even find your pension fund produces enough income to cover these costs and still enable you to pass on your wealth.
Once you know what your risk appetite is you can have an idea of what your allocation could generate in terms of growth/income.
Check the health of your pensions
If you are unsure if your pension will generate enough income to support you when you retire, contact us today and we will assist you and inform you where you stand today and what improvements can be made.