Welcome to this year’s Hot Girl Retirement guide: your definitive guide to living out your retirement days in style.
What is this guide about?
The goal of this guide is to help you unpack pensions in a way that doesn’t send you to sleep and (hopefully) gives you some actionable takeaways to help you plan for your financial future. Last year’s guide was super popular, but this year we’ve gone the extra mile. This guide will talk you through…
- The three different retirement lifestyles as told through the lives of our three nans
- How much you’ll be spending annually
- How much you should ideally be contributing to your pension now if you want to achieve each of those lifestyles
A pension in 3 lines.
A pension is a pot that will fund your retirement. Your employer may pay into your company pension, but you can also set up a personal pension. When you contribute to a workplace pension, some of the money that would have gone to the taxman 🦸♀️ goes to your pension instead.
Where’s the data from?
Last year’s guide was based on the Pension and Lifetime Savings Association (PLSA) and we’ve decided to use that data again. We’ve also used data from Nutmeg’s Pension Calculator which I’ll explain in a bit.
This article is part of an educational series sponsored by Nutmeg.
I’m so excited to be working with Nutmeg - I’ve been a Nutmeg customer for 10 years. I opened my very first Stocks and Shares ISA with them when I was at Uni and I still invest with them today.
We’re unpacking pensions together - we’re looking at the expectation-reality gap when it comes to retirement and exploring what you can be doing today to feel better about your financial future.
Make sure you’re following along on Instagram for my educational series with Nutmeg and save the 23rd of November in your calendar when we’ll be doing a Pension Helpdesk on Instagram live.
Who are Nutmeg?
Nutmeg is a digital investment management service. They offer things like Stocks and Shares ISAs, Lifetime ISAs and Pensions, as well as offering restricted financial planning and advice. You can also transfer and consolidate your existing pension(s) into a Nutmeg pension.
If you’re a bit of a geek when it comes to numbers and research, you might find their latest pension report interesting.
If you just want to learn more about Nutmeg and perhaps consider consolidating some of your old pensions, then click this link.
What are the three 'levels' of retirement?
The Pension and Lifetime Savings Association (PLSA) publishes something called the Retirement Living Standards. The goal is to give you a rough idea of how much income you need when you retire. They classify retirement lifestyles into three categories:
In the Hot Girl Retirement Guide, we’ve got three different Nans to illustrate what each of these lifestyles might look like in reality.
But how much do I actually need to contribute to my pension today?
Whilst the PLSA’s Retirement Living Standards do a great job of showing us how much we’ll need to live out our hot nan life, they don’t show us how much we need to set aside now.
In this guide, that’s exactly what we’ve done. Using Nutmeg’s pension pot calculator, we’ve done the sums for you so that you can get a rough idea of how much you should be contributing based on your age.
Here are our assumptions:
- We assume you retire at 65
- We assume you achieve an annual return of 5%
- We assume you currently have just £500 in your pension pot
- We’ve assumed that inflation is 2% (we know this is much lower than inflation today but it’s an average)
- We assume your investing costs are 1.02%
- We haven’t included the state pension in this which is £9,627 per year (2022/23)
- Where it says ‘includes’, that’s the average expenditure on those specific items for a couple. You are however able to see the average total annual expenditure for a single person. You can view more on the expenditure of single folk here.
If you’d like to use Nutmeg’s calculator you can do so by clicking this button
Don’t forget the state pension
As mentioned above, we haven’t included the state pension in this which is £9,627 per year (2022/23). It’s a help but you might not want to rely on it if you want to have anything more than the minimum retirement lifestyle.
Don’t forget your mortgage/rent
Sadly, pensioners paying a mortgage or renting likely won’t be an unusual thing in 30-40 years' time. If you think there’s a chance that you’ll still be paying your mortgage or renting by the time you retire then it’s worth factoring that in or alternatively using the calculator to project a later retirement date.
Don’t forget that your employer also contributes to your pension
The figures below might look like a lot, but remember that if you have an employer they may also contribute to your pension. Whatever they contribute is included in your target contribution figure.
With all that covered, let’s crack on with the guide…
The comfortable retirement (aka the luxury nan)
Always has a cruise in the diary. She's fabulous.
You'll be spending £49,700 per year as a couple and £36,600 as a single person.
🛍 £94 weekly shop
🚖 Two cars replaced every five years
🧖🏾♀️ Beauty treatments (that filler is expensive)
✈️ 3 weeks’ holiday in Europe every year
How much do you need to contribute now?
The moderate retirement (aka the Glam gran)
Taking it down a notch but keeping it glam.
You'll be spending £30,600 a year as a couple or £20,800 as a single person.
🛍 £74 weekly shop
🚖 3-year old car replaced every 10 years
✈️ Two weeks away in Europe + a long weekend in the UK
How much do you need to contribute now?
The minimum retirement (aka the Super Nan)
Some folk have a generous pension scheme, a stable & financially supportive marriage but this isn't the case for all. In fact, 2.1 million pensioners are now living in poverty with single women at an even greater risk.
Super Nans are the heroes - they make it work, often provide free labour to their families.
A 'minimum retirement' is just enough to have a reasonable standard of living.
A single person would need £10,900 to spend a year and a couple would need a combined income of £16,700.
As a couple, this means you would be able to rely on the state pension, whereas a single person would need some extra income beyond the state pension which is £9,627 per year (2022/23).
For a couple, this would include:
🛍 £67 weekly shop
🚖 No car
🏡 A week + weekend away in the UK
How much do you need to contribute now?
So now what?
Firstly, let's just say a big hello to the elephant in the room here: achieving even a moderate retirement is going to be really difficult to do for so many. Living costs are at an all-time high and many have been forced to opt-out of their pension during the pandemic. These figures are just a guide.
Rules of thumb
If you need some guidance then this rule of thumb might also help:
Halve the age at which you start contributing and put that percentage away every month. So if you start at 30, you need to put 15% away, but if you start at 22 you only need to put 11% away.
What about consolidating?
If you’ve been collecting pensions like Pokémon then consolidating can be a great option. By putting them all into one pot you’ve got less to keep track of and you might save money by paying fewer management fees. It’s important to double-check that combining doesn’t mean you’ll miss out on any benefits such as guaranteed annuity rates. If you think you might have a pension from an old employer but you’re not sure who it’s with, the government's pension tracing service can help - it’s free!
To learn more about making the most of your pension, click the banner below. Nutmeg has lots of resources and can help you open or transfer a pension.
What else is within your control?
Having a pension is one thing but how can you take your retirement goals to the next level?
1) Opt back in - If you can, you may want to opt back into your pension.🙏
2) Find a generous employer - this is underrated. If you're on the hunt for a new job, do some research into the pension scheme. Will they match your contributions for example?
3) Maximise your contributions if you can afford it - Make sure you understand your current employer’s pension offering and make the most of it. Some employers do things like matching your contributions up to a certain percentage.
4) Use a Lifetime ISA - This is like a retirement booster shot. You can save or invest up to £4,000 per year and get a 25% bonus from the government, so that's £1,000 a year. You can use a LISA to buy a first home or for retirement, but if you need to withdraw for another reason there is a penalty, so it’s worth doing some research to make sure a Lifetime ISA is right for you.
Yes, you may need a pension too! A guide on this is coming soon.
More help please
Make sure you’re following along on Instagram for GFY’s educational series with Nutmeg and save the 23rd of November when we’ll be doing a Pension Helpdesk on Instagram Live! I’ll be joined by Nutmeg’s very own Pension Queen, Kat Mann.
To learn more about making the most of your pension, click the link below. Nutmeg has lots of resources and can help you open or transfer a pension.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A stocks and shares Lifetime ISA or pension may not be right for everyone and tax rules may change in future.
You must be 18-39 to open a Lifetime ISA. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in. Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. Please note that during any transfer, your investments will be out of the market. If you are unsure if a Lifetime ISA or pension is right for you, please seek financial advice.
Data & assumptions:
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