How much do I need to save for a moderate retirement in 2025?
- Noel Watson
- 4 days ago
- 4 min read
Introduction
Those reading yesterday's post on how much a comfortable retirement might cost would be justified in thinking this blog is a "cut-and-paste job" in an attempt to drive traffic to our site! However, while yesterday's post attempted to determine a reasonable retirement pot for Mike and Jenny to finish work and enjoy a comfortable retirement, today's blog looks at why it can be suboptimal to assume a given size of retirement pot may apply to your situation.
For Mike and Jenny, we evaluated a comfortable retirement for a couple; today, we will examine a moderate retirement for a single person, which the PLSA estimates at £31,700.
Elizabeth Clay
Let's start with Elizabeth. Elizabeth is 65 and plans to retire next year, holding the following assets, in addition to a full state pension.
As we did yesterday (iteration two onwards), we assume that Elizabeth's spending increases by 1% less than inflation each year, starting at £31,700 per annum. For this analysis, we won't make an allowance for care fees. Elizabeth's Voyant cashflow shows a successful outcome with no red bars (shortfall).
In Timeline, we assume a 70% equity portfolio (with the same allocation as Mike and Jenny, iteration #6), with total annual fees of 1.5%. Timeline shows Elizabeth has a good chance of retirement success, with the plan succeeding in 90% of historical scenarios.
Furthermore, the worst-case scenario has the money running out in Elizabeth's early 80s; realistically, slight adjustments to expenditure, should she experience a poor outcome in early retirement, would push this back several years.
The chance of both a poor series of market returns (risk of running out of money) AND outlasting the retirement pot (chance of survival) is minimal!
John Dalton
Now we come to John. John is 50 and, after a career in technology, is thinking of hanging up his boots next year. John is too young to remember the .com bubble, and based on tech's strong performance in recent years, has invested his portfolio in the U.S. tech markets. This good fortune has led John to believe that he can bring his retirement forward several years.
Like Elizabeth, John will have a full state pension (he intends to top up his National Insurance contributions to ensure he receives the full amount) and plans to increase his expenditure at a rate of 1% less than inflation each year. John also won't be planning for care fees.
John's balance sheet is twice that of Elizabeth's, so even though he is retiring far earlier than her, it may be that he will also be able to finish work next year.
The Voyant cashflow confirms this to be the case. Happy days!
Let's take a look at Timeline. At a high level, things appear to be fine, with the plan working in 83% of historical scenarios and the median case showing the balance increasing over time (in real terms).
But, and it's a BIG "but", the worst-case historical scenario has the money running out before John has drawn on his state pension!
John's concentrated position (for John, I assumed a 100% U.S. equity position - a real-world tech portfolio will be even more focused!) means that worst-case outcomes are bad. Really Bad. Furthermore, the behaviour gap of these more concentrated portfolios tends to be worse than those with more diversified holdings (we talk more about the behaviour gap and the impact on safe withdrawal rates in part three of our 4% "rule" series). From 1973 to 2022, NASDAQ investors trailed the benchmark by 5.3%! We have been kind to John and assumed the behaviour gap is "only" 3%.
Conclusion
Be wary of headline numbers stating the exact amount needed for a given level of retirement income. We've shown that Elizabeth, who has half of John's assets, is likely to be more confident of a successful retirement (although John probably doesn't realise that yet!).
Many variables can impact the retirement pot required for a given retirement standard, including when you finish work and whether you are like Elizabeth or, instead, someone like John, who is at risk of blowing up his retirement plan.
Want to find out more?
If you worry that you are in John's position (Elizabeth already uses an adviser specialising in retirement planning) and want to build a more robust retirement plan, please get in touch.
About us
The team at Pyrford Financial Planning are highly qualified Independent Financial Advisers based in Weybridge, Surrey. We specialise in retirement planning and provide financial advice on pensions, investments, and inheritance tax.
Our office telephone number is 01932 645150.
Our office address is No 5, The Heights, Weybridge KT13 0NY.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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