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Pension Planning The income you will need when you retire will be higher than the income needed if you could retire today because inflation increases the cost of living. This guide will help you work out the following.
To use this guide first decide
Now replace the red example figures below with your own and use the formula in the example beneath to calculate the retirement income you will need.
E xampleMultiply the amount you would need if you could retire today by the rate of inflation plus an additional one hundred percent as shown below using the red example figures.£25,000 x 103.5% equals £25,875 Now multiply the answer £25,875 again by 103.5%£25,875 x 103.5% equals £26,780.6 Now lets say you plan to retire in twenty years as shown in the example all you need do is repeat the calculation a further 18 times until you have completed a total of 20 multiplications. One for each year before you retire. Your final answer will be the amount you need when you retire taking into account inflation. The final answer using the example comes to £50,000. £50,000 will therefore be the equivalent of £25,000 today if annual inflation increases by 3.5% pa over the next 20 years. Calculate how much money you will need to provide the income Now you know the annual income you need you can work out the amount of money required to provide the income by s imply replacing the red income figure in one of the examples below with your own and making the calculation.This guide is based on you investing when you retire all of the money you have saved and using the annual interest from your investments as your only source of income. The amount you need to invest will depend on whether you are going to be a medium or low risk investor when you retire. Medium risk investor example A medium risk investor expecting an annual return of 10% to provide an income of £50,000 will need to invest £500,000 when they retire. You can refer to the chart below to see approximately how much you would need to save monthly to achieve £500,000.
Low risk investor example A low risk investor expecting an annual return of 5% to provide an income of £50,000 will need to invest £1,000,000 when they retire . You can refer to the chart below to see approximately how much you would need to save monthly to achieve £1,000,000.
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