Will your retirement be 'luxury', 'comfortable' or just 'essential'?
ONE topic I constantly return to here is the need to think right now about the lifestyle we want when we retire, and to take advice to be sure we're on track to achieve it.
We're not good at planning ahead on our own – just to recap a couple of recent facts: the Association of British Insurers says only 1 in 5 of us (22 per cent) know what we are paying into our pensions. How can we know how much we'll have to live on, later on? We could be sleepwalking our way into ‘pensioner poverty'.
Perhaps due to this lack of knowledge, in Northern Ireland we are bottom of the table in the UK for pension saving – less than half of us (46 per cent) are making adequate provision for our later years.
Well, everybody's goals for retirement are different, but those fine people at ‘Which? Money' have just done some impressive research with 6,000 retired or retiring people, to give us an idea of how much various lifestyles currently cost.
As a starting point, they say a good target is to aim for a retirement income that's half to two-thirds of your net household income when you retire.
However, this assumes that you have your mortgage paid off, and are no longer supporting the children.
Three key income figures have emerged from the research. The ‘Essential' level household income is £17,000 and covers the basics: food, housing payments, transport, utility bills, household goods, insurance, shoes and clothing.
Then there's the ‘Comfortable' household income, which is set at £26,000, covering the essentials but adding regular short-haul European holidays, some recreation and leisure spending, tobacco and alcohol, and charitable donations.
Most attractive is the ‘Luxury' household income, set at £39,000, which covers the above but adds extended long-haul holidays, health club memberships, dining out and a new car every five years or so.
Looking just at the basics, the main average annual outgoings for everyone are groceries (£3,870), housing expenses (£2,879), insurance (£2,489), transport (£2,364) and clothing (£1,077). As you see, the ‘Essentials' income of £17,000 wouldn't be long in disappearing.
There's also the issue of longevity – once we know how much we'll need, we have to know how long we'll need it for!
As a guide, in this day and age, and given our excellent health prospects in the age of the ‘wellderly', we need to plan for a retirement that could last 20-30 years.
Which? reckon that the average man in the UK aged 65 today will live until he's 87, while a woman aged 65 can expect to live until 90.
We can ‘zoom in' on our local situation here in Northern Ireland.
Specific regional figures from the Northern Ireland Statistics and Research Agency (NISRA) show that here too, we are getting older and older, living longer and healthier lives.
NISRA says the Northern Ireland population aged 65 and over is projected to have increased by 25 per cent (ie 74,500 people) in the decade from 2016 to 2026. Increases are split out for each of our 11 local government districts (LGDs), ranging from 15.2 per cent in Belfast to over 30 per cent in Newry, Mourne and Down, and Mid Ulster.
Five of our 11 LGDs are also going to see growth of over 40 per cent among those aged 85+, with Mid Ulster highest at 48.1 per cent.
As with any long-term financial plan, longer retirements make it essential to factor in inflation, the ‘silent bank robber' that slowly eats away at the value of your savings. Even low inflation of 2 per cent will cut the value of your income by a third over 20 years, and by nearly half over 30 years.
So can you aspire to be on the ‘Luxury' or ‘Comfortable' retirement incomes? Just to cover the basics, we all need to achieve at least that ‘Essential' income of £17,000 a year.
Is it time you dropped by for a chat now, to make sure you're on the ball and on course for the retirement you deserve? The thing about pension planning is that it doesn't happen by itself!
Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005. Further information on Facebook at “Kennedy Independent Financial Advice Ltd” or our website www.mkennedyfinancial.com