What's up you guys, sasha here and today we're going to talk about how much money you actually need in order to be able to retire now there are slightly different ways in which you can think about. It depends on a number of different things in terms of how exactly you're going to retire. What other income you may or may not have exactly what you're going to do with the pot of money that you're wanting to use for a time? And so let's go through those different options and just talk about very simple numbers so that it is easy to understand, especially as there's so much information out there, which, generally speaking, is incorrect at best or it talks about other countries. There's a lot of us-based content and lots of other bits of information which just aren't really talking about the specifics.

Let's cover it in this video. First, let's talk about what retirement actually is i mean to different people. The same thing can mean very different things. Some people think about retirement as a day in their life.

When they will stop work, they will never do a single day of work. From that point onwards, they will never earn any more money other than the money they've saved up up to that point, and that is what they want to do now. Some other people may prefer to go and do some form of a side. Hustle, have a retirement job, have some kind of part-time vacation or do something to keep them occupied.

There's different people with different wants and needs, and you need to understand exactly what it is that you want when you're talking about retirement now the big question is: what will you do after retirement in terms of work and other income? Will you continue working in some degree of capacity? Will you have any other side hustles? Will you have any other side income? Will you have a state pension and if so, do you know how much your state pension is in the uk? The state pension can be reasonably generous, although on its own, it's not going to be a huge amount of money, and it's not going to let you live the sort of life, maybe that you used to live before, but it can be quite a strong contributor towards The overall amount of money that you're able to draw the next big question is: do you actually want to retire a lot of people talk about retirement, there's loads of videos out there about people talking about retiring in their 40s and their 30s, whatever it is? What's the point, do you want to spend more than half your life sitting on the sofa watching tv and drinking coffee? I mean i like drinking coffee, but is that what you want to do with your life is that is that really what you want to do? Do nothing i mean to some people that might sound like heaven and if so, maybe you should consider planning for retirement as early as possible, but i would wager that to a lot of people if they were to retire too early, they would find themselves incredibly bored Really quite quickly, some people, as they approach retirement age, begin thinking. I can't wait for the day that i can stop doing this job. I absolutely hate having to come here every day. I absolutely hate having to do this work every single day, but maybe the mindset shouldn't be.

When is the day that i can quit doing this, but maybe you should be thinking what else can i do? Can i change this job and do something different? Can i do something that i find more fulfilling? Can i do something that's more interesting. Can i do something that generates income through a means which is more valuable, more entertaining more engaging more whatever it doesn't really matter? Maybe you should consider that, because that is a viable alternative. The last thing to consider is: do you want to go and sell anything? Do you want to go and raise money through getting rid of assets? So, for example, do you want to downsize? Do you want to sell your big house and move into a smaller one? Do you want to sell any other assets like, for example, you could sell your business? If you have one, you might have other possessions that you don't really need that you want to sell and raise funds from. Are you going to draw the 25 of your pension that you can draw upon retirement tax-free and only use the remainder to fund the actual annuity you're going to be buying the some of the money that you raise through selling stuff like this can significantly impact your Retirement in two ways - one you might just use the cash directly as a source of income for a period of time.

If that's what you choose to do, and in that case, you may want to delay the point at which you buy any annuities or do anything else until a later point. The other thing you can do is take the cash that you just generated for selling stuff and buy an annuity or invest invested into stuff, so that then you can generate a larger per year. Drawdown from your total pot than you would otherwise have been able to do so. First, let's talk about the simple answer to this question in terms of how much money you need to retire, and that is just simply buying an annuity now, a lot of financial advisors will recommend this.

I am not a financial advisor, so i'm not going to tell you what you should do. This is a question for yourselves and if you want some help, go and seek it somewhere else, but if you are looking to buy an annuity, this provides a lot more certainty than some of the other options, because once you've bought the annuity, your income is guaranteed. You know exactly what you're going to be getting every single month and through that you have a lot of certainty. You know exactly what you can and can't spend.

You know exactly what your incomings and outgoings are, and you can effectively budget for your retirement by doing that now, as people are getting older, the annuity rates are changing and they're changing relatively fast. If you're wanting to buy an annuity, the age of which you plan to retire, is a huge factor, so you need to consider exactly when you want to retire, because it will impact how much money you can draw per month if you're wanting to retire age 60, Expect the annuity multiplier to be somewhere in the range of 25. Now, depending on how good you are with finding the right annuity or exactly who your pension is with and what the rules are for moving it all of those things. It may vary slightly from provider to provider, but, roughly speaking, an annuity for h60 would be somewhere like 25..

So if you have part of a hundred thousand pounds or per hundred thousand pounds of whatever pot that you do have expect to get somewhere in the region of four to four point, one thousand pounds per year as a payout. So essentially, that multiply number that i talked about. You just divide your total pot by that number and that's how you get the final amount that you're going to be earning per year from this pension annuity, if you're planning to retire a little later. Let's say you wanted to retire at 70.

The likelihood is that your annuity rate would be somewhere in the region of 18 and what this means is you'll be able to draw something like five and a half five point: six thousand pounds per year instead of the four thousand, so quite a substantial increase. But you have to wait an extra ten years, so you need to decide exactly where you sit in terms of what is valuable to you, getting more money or having your pension for longer, thereby being able to retire more early now after 70, the annuity rates begin. Dropping relatively sharply so, if you're looking to retire at something like 75, the new iterator is 15. So that means you can draw something like six and a half thousand pounds per year from it, which is again quite a large step up.

But you have to wait a long time to be able to retire, if you do that. So, let's take a simple example: if you're wanting to retire on like a median salary of 25 000 pounds - and you want to retire at age 70, then you will need about 450 000 pounds in your retirement pot in order to be able to do that. Now that sounds like a huge amount of money, but if you're saving the right way towards your pension through the company contribution schemes through adding as much as you possibly can and getting the firm to contribute as much as they possibly can over a long period of Time, it is definitely achievable, especially if you invest the money wisely from when you begin investing and you begin contributing to your pension as early as possible. Now a lot of people recommend this option because it is safe because it guarantees a steady flow of income in your retirement and it is predictable.

A lot of people also recommend that you smash the like button for the youtube algorithm. Did i get you there did? I did you, did you just go and do it right now come on just hit it hit? The like button hit the like button. Alright, now the other route you can take is take the pot of money that you've saved and put it towards an investment. Instead of buying an annuity now, this route is a little bit more risky.

There's slightly different things. You have to consider i'm going to go through them just in a second, and the other big difference is that this pot of money will have to be saved well. In advance, because it will be different to your pension pot, you can't go and take a pension pot and then do whatever you want with it. When you come to retirement, you kind of have to buy an annuity, except for that 25.

You can draw down the rest, you have to go and buy as an annuity at some point in time. If you have separate savings, let's say you have several years worth of isa, contributions, any other form of investments or savings or any stocks and shares, or whatever else that you have now with that pot of money, you can pretty much do whatever you want. There's a lot more risk involved, there's a lot more volatility and if things don't go well in terms of your investment strategy in the first year or two, this may significantly impact the amount of money you have in your retirement. So make sure you consider all of those factors and talk to a suitably qualified investment, professional or financial advisor if you need to, but there's a lot of upsides potentially too.

If you go down that route, there's two general ways that people tend to go when they're doing an investment and they're using it as a sort of vehicle for their retirement and the two ways of this one. You run down the portfolio that you built up, and the second way is, you live off the interest and the dividends and the growth of the portfolio. Only now, if you run your portfolio down, the calculation is slightly more difficult, because, basically, what you're doing is you're saying you're gon na generate your own annuity in effect. So what you're doing is exactly the same thing as the pension company would be doing.

If you were giving the money to them and buying an annuity except you were doing the same thing yourself, so what you're doing is you're taking the pot you're investing it in whatever you choose to invest in then you're drawing a fixed amount of money per year. The massive downsides here are this: when the pension funds do this, with hundreds of thousands of people they're able to average those annuities, because while some people live longer and are able to draw their pension for a longer period of time, the people who live for a Shorter period effectively balance this to that average when you're doing it for yourself, you don't have that benefit, so you have to be much more conservative than the pension fund would be. What happens if you lift 100 and you've drawn your pension by the time, you're. 85.

Then you have absolutely nothing to work with. You have to live with whatever state pension means or any other type of money that you have available at that point. If the money is run dry, if you plan to live to 110 and base your pension contributions of that, then you run the risk of having a much much lower per year amount because on average you probably won't live to that. But if you're building as an insurance policy, that will mean that your per year drawings would be much lower.

This method is also the most risky because you're drawing the money down and you're, relying on that average investment yields to be relatively stable over a period of time. That means that if, in the first two years say your investment portfolio doesn't do as well as it should. Let's say you go through an economic crisis during those first two years and your portfolio shrinks by 10 or 20 percent. This will have a huge impact on the rest of your retirement and the amount of money that you can draw down.

If you compare like for like numbers, you're, probably looking at something like a 10 to 15 percent uplift on average versus buying an annuity in terms of what you can draw down through going down this route with all the risk and volatility attached. So what i mean by this is if you're gon na invest the same 450 000 pounds in this way, and you expect the average return to be something like four percent after you've accounted for inflation, because, typically speaking, the markets will return you six to eight percent. If you average it out over a long period of time and when you account for inflation, that probably brings it down to somewhere in the four to five percent territory. So to be conservative, let's assume it's a four percent return.

So if you're looking over a 25-year period drawdown, which means at the end of the 25 years, your whole pension will be gone and you'll have absolutely no money. Left you're gon na be getting something like 28 28 and a half thousand pounds. As i said, the amount you're actually going to be able to get will vary hugely depending on where in the economic cycle you retire and exactly how your investment portfolio fares over that period. If you invest in less risky stock, then you will probably be able to guarantee a more steady amount of income, but the returns are going to be lower and therefore your drawings will also be lower and there's a big, difficult question, which is how long do you Want this period to stretch for because if you plan ahead and you'd expect this amount of money to last you a 25 or a 30-year period, if you happen to live for another 10 years after that, you will have no more money left.

The second way you can think about living of an investment portfolio instead of getting an annuity, is to draw only the increase in investment portfolio over time down as you pension and leave the whole balance there, without touching it ever now. This sounds like you would be able to draw much much less money, but just think about this. Let's say you invest 100, 000 pounds. What happens is at the end of the year.

You go and take 100 000 pounds and you add inflation. Let's say inflation was two percent, so that means at the end of the year to break even your portfolio needs to be at 102 000 pounds if, at the end of that year, your portfolio is at 110 000 pounds. For example, you can take the 8 000 difference, pay it to yourself and, in effect, your portfolio hasn't decreased or grown at all. It's exactly in the same place as it was before.

So this strategy means that you always cream that difference now. The difficulty here is, if you portfolio, shrinks for one year or doesn't grow at all, then you can't draw any money out, so you have to be incredibly robust. You have to have a deep savings account. You have to know exactly what you're gon na do.

If, for one or two years, you have no income whatsoever, in some cases, it might even be longer if we enter some great depression. If there's a massive financial crash of the like we haven't seen before, you might have to go and do this for quite a long period of time, so the risks are definitely a lot greater than if you were buying an annuity. Although this method is generally much safer than the previous version, where you're drawing the entire amount down over a fixed period of time, the math is also quite surprising. So if we use exactly the same assumption so let's say the average growth is about four percent per year after you account for inflation to get the same annual return of 25 000 pounds, you only need a portfolio of 625 000 pounds to start with now.

This is absolutely amazing because when we were talking before we said the 450 000 pound pot buys you an annuity which pays you 25 000 pounds. The difference here is you're earning the same 25 000 pounds every single year for as long as you need to, but at the end of that period, when you die, the inheritance that you will be able to pass on will be the same 625 000 pounds plus Inflation for every single year, so this is pretty amazing because although 625 000 is not that much greater than 450 at the end of your retirement, when you die, although you've been drawing exactly the same amount of money every single year, you can pass the entire amount Plus inflation to either your spouse, your children, to any charitable cause that you want whatever it is, that's quite a big win. If you like this video, please make sure you hit that like button and subscribe, it is incredibly important for the youtube algorithm that you hit that like button, it helps us grow and reach more people more quickly. If you subscribe, i will be putting out videos every single week on a monday wednesday and friday, and i talk about personal finance.

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