Chartered Financial Planner Jeannie Boyle from EQ Investors has revealed how to make sure you can still afford to head abroad when you retire
Most people will rely on a pension in their retirement – but what sort of lifestyle this gives you depends on how much you’ve saved during your working life.
One of the main indexes used to judge how much money you need in retirement is the Retirement Living Standards which is calculated by the Pensions and Lifetime Savings Association (PLSA). If you want a comfortable retirement, which includes two abroad holidays a year, you’d need to have pension income worth £37,300 a year if you’re single, or £54,500 for couples.
In comparison, a minimum level of retirement standard for a single person would cost around £12,800 in pension income each year, while for a couple it would be £19,900. The PLSA says this lifestyle wouldn’t cover enough to holiday abroad. If you’re someone who likes to travel, Chartered Financial Planner Jeannie Boyle from EQ Investors has revealed how to make sure you can still afford to head abroad when you retire.
Start saving into your pension as early as possible
The earlier you decide to start saving for your retirement travels, the better. Ms Boyle said: “The longer money is invested, the more value it has. For example, investing £50 a month with 5% per annum growth from the age of 20 will give twice as big a fund at the age 60.”
Set yourself travel goals
Ms Boyle says it is worth taking the time to sit down and work out where you would like to travel to, and how much it would cost. She said: “Take the time to regularly picture yourself on your desired travel holiday, whether this is a beach or on the ski slopes, as you’re more likely to be committed to your pension savings this way.
“Writing out the list of places you want to go will help motivate you to save and remind you of your reasons for it. It will also allow you to start putting together a budget for each trip.”
Make sure your budget isn’t too strict
If your budget is too extreme, then you won’t stick to it. Ms Boyle said: “It’s important to find a balance between saving for the future and living now. The 50/30/20 rule is helpful for this. This rule is one way to understand how to allocate your income.
“50% is spent on things you need such as housing costs, utilities, food and 30% is spent on luxuries or lifestyle choices such as holidays or entertainment. With the last 20% that should be put towards long term savings such as your pension.”
Speak with a financial advisor
A financial planner can help you plan out your spending over retirement and factor in things such as the state pension. Ms Boyle said: “A financial advisor can help you plan your pension withdrawals as you can take up to 25% of your pension as a tax-free lump sum. This is useful for funding a big trip to celebrate the end of work.”
Check with your employer for pension contribution
Some employers offer to increase their pension contribution if you also increase your payment too. Ms Boyle said: “It’s a good idea to take up this offer if you can afford to as it’s a really easy way to boost your savings and boost your travel spending pot. Under the auto enrolment rules employees must save 5% into their pension and employers must pay at least 3%.”
Open an ISA account
An ISA is a type of savings account where you never have to pay tax on the interest you earn – for pension savers, they also allow you access to your savings from a younger age than your private or workplace pension.
You can deposit up to £20,000 across ISA accounts each tax year. Ms Boyle said: “They are tax-free and allow flexibility. Using ISAs means you can access the money before you are 57 if you are capable of retiring and therefore travelling at this age.”
