How much will I need to survive my retirement?

• How increasing longevity impacts your retirement
   
• What different types of pensions and annuities exist
   
• How to calculate how much you will need
   
• What might will cut into your pension

You should be planning for your retirement, even if you have a pension set up. Continual improvements in treatments, medical technology and healthcare mean that around the world, we’re all generally living longer, healthier lives.

It is expected that by 2050, the global population of individuals aged 60 will reach 2.1 billion and many will outlive their retirement savings by between eight and almost 20 years (WeForum, World Economic Forum, 2023).

Plus, women have a longer life expectancy than men - by 2060, it is predicted that women aged 85+ will make up 2.9% of the total US population!

So many of us, especially women, will be living for a good long time after hitting retirement age. Not all current pension plans are designed to deal with this.

While pensions are excellent financial tools, they haven’t kept up with our lengthening life spans, so you should think about how much you’ll be able to rely on yours in retirement. You could be looking at 30 years or more on this income, so it’s important to make sure the figure is right.

Let's start by looking at what will make up your income when the time comes. Firstly, in the US, the three most common options are:

• Retirement plans from employers
• Savings & Investments
• Social Security

Your Social Security will provide you with a source of income when you retire (or if you are unable to work). You can learn more about accessing Social Security funding, as well as more on your Private Pension Benefits, through USA.gov.

Speaking of workplace and personal pensions: your pension pot is the total amount of contributions you (and possibly some of your employers) have put into your pension fund(s). That pot includes any capital growth that each fund has earned, depending on how your scheme was set up. If you’ve joined more than one scheme, you’ll have more than one pension pot - it’s a good idea to combine them before retirement. Once you’ve hit 55, you can carry on contributing to the pot, use some or all of it to buy a retirement income, take some or all of it as cash, or combine different options.

One thing you can do is buy an annuity, which is a special insurance policy that gives you a guaranteed income for the rest of your life. How much you‘ll get each year depends on things like:

• The size of your pension pot when you bought the annuity
• Your age
• Whether you want the amount to increase each year
• Whether you want it to pay out to someone after you die
• Your health and lifestyle

It’s important to consider the standard of living you want for your retirement. Research by TransAmerica found that 'the estimated median for baby boomer's total retirement savings is inadequate to provide the income needed'.

Your income will obviously change once you retire, but it’s not all bad – because your spending will too. You should have paid off your mortgage, will no longer be bringing up children and won’t face the cost of commuting once you've retired.

Draw up a budget of how much you’re likely to spend for a clearer picture of how much you’ll need. Run through the same process as in this module. You can divide it up into basics such as home, food, bills and clothing. Independence and flexibility expenses like running a car, healthcare (possibly a major ongoing cost) and home improvements. And then more luxurious spending like foreign holidays, gifts, etc.

Basics should be covered by secure income, ideally also your expenses related to independence and flexibility.