“How much pension do I need to retire” is a common question. People nearing retirement age are understandably concerned about their future.
Here’s a wild concept: Stop stressing over how to come up with millions for your retirement fund. Take whatever state pension you are eligible for and move somewhere cheaper. You can live like royalty on your small retirement income?
Before we go any further, this article is about people who live in the west or anywhere else in the world where state pensions exist.
How much pension do I need?
Most financial experts say you should retire on 80% of your last salary. That means if you earned £45,000 per year before retiring, you’d need at least £36,000 per year to live comfortably once you stop working.
The 4% rule
If you want to retire on £36,000 a year, you’ll need a nest egg of around £900,000. To calculate this, simply multiply your annual expense by 25. £36,000 X 25 is £900,000. If you had £900,000 in your pension fund, you would take out 4%, which is £36,000 per year.
If your cost is £24,000 a year, you need to save £600,000 (£24,000 X 25).
This is an estimation. It does not include any state pension to which you may be entitled. It also assumes that people will live for no more than 30 years after retiring. In reality, your cost of living decides how much you need.
The Unbiased pension calculator can give you an idea of how much you need in retirement. The Money Helper is another popular pension calculator. It includes both state and employer pensions. It will tell you how much money you need to save to be able to pay your bills when you retire.
Every blog, every article and news on the state of pensions is gloomy. Bad news gets our attention and sells. People in their 50s and 60s are constantly bombarded with news of how deprived we will be in retirement.
We are constantly urged to start saving and build a nest egg. Great advice! However, if you are already in your 50s and 60s, you only have a little time to build a nest egg.
Other suggestions include postponing retirement dates; in other words, keep working until you die.
It is hard to save for retirement.
Most of us won’t save £500K, let alone £900K. That is just keeping it real. So, what do we do? Do we throw in the towel and accept living in poverty for the rest of our lives? Are we happy to carry on suffering for the rest of our lives?
People are frequently criticised for not having retirement funds set aside. This isn’t fair, in my opinion. Nobody deliberately seeks to harm themself, nor are they stupid. Everyone would set aside money for retirement if they had the means and know-how. Unfortunately, there are too many immediate expenses to cover, making long-term planning difficult.
There was a serious shortage of money during my twenties, thirties and early forties. My choices were to feed my girls and pay bills to keep a roof over our heads or save for retirement. There wasn’t even enough to pay all bills; therefore, saving for the future took a back seat.
What are your options?
UK citizen and other Western countries are eligible for some kind of state pension. Start by finding out how much this is, and then figure out how much extra money you will need when you retire.
State Pension
If you’re wondering, “How much pension do I have to retire on?” start by looking at how much you get from the state pension. Finding out how much you get is easy. Check your state pension forecast here.
If this is your first enquiry, you need to create an account with the government called Government gateway. It is an easy process.
The current forecast is about £802.32 a month. By Western standards, this amount is small when you factor in the UK average monthly rent is £1051 per month, and you still need to eat, buy clothes, socialise, and do other things that make life worth living.
The money you get from your pension won’t cover your UK rent or other costs. So what else could you to make life in retirement enjoyable?
Retiring to a place with a lower cost of living
What if you took what little state pension you have and retire to a cheaper location? Check out the following countries where the cost of living is below £800 per month? Don’t believe me? Click on the links to find out for yourself.
Belize
Belize is located in Central America, surrounded to the north by Mexico, to the south and west by Guatemala, and to the east by the Caribbean Sea. It is a safe place with misty mountain ranges, massive waterfalls, lovely rivers, savannahs teeming with wildlife, and lush rainforests. The official language is English. The all-inclusive cost of living in this tropical country is £700 per month.
Costa Rica
Also located in central America, Costa Rica has the most stunning beaches and rainforests, volcanoes, waterfalls, and hot springs. The all-inclusive cost of living in Costa Rica is £730 per month.
Greece
For those who want to stay closer to home, why not check the ancient country of Greece? You have all the adventure, fun, and awesome weather to look forward to. The all-inclusive cost of living in Greece is £750 per month.
There are many countries where your little pension will stretch further. Check out this article for more information on affordable paradise to live in.
If your only retirement income will be from the government, now is a great time to start planning for a fulfilling retirement.
You can take the money you have and move to a place with a lower cost of living, more amenities, and pleasant weather throughout the year.
I know this is a radical solution for conservative minds, but why not give it a go? If not forever, try it for a while. You may hate it. No problem, go back home, but you may also love it. You will know once you try.
If you are still trying to figure out where to start your search, check out this blog about the cheapest paradises to live at the lowest cost. It was written with the digital nomad in mind, but it will also work for you.
If this is something you can see yourself doing in future, there are things you need to think about now.
Preparing for radical change
Start saving
So, while I am not suggesting that you shun the idea of saving for retirement and rely solely on your state pension, the purpose of this post is to present an alternative narrative to the doom and gloom surrounding retirement.
Every little little helps, even now is a good moment to take charge of your finances in order to increase your retirement income. This is the perfect moment to be money conscious and create solid saving habits. You’ll feel better about yourself if you see money in your account.
Reduce your monthly expenses
How much money you need to retire depends a lot on how much you spend. Now is a great time to look for ways to save money. You should try to keep a good standard of living while getting rid of all waste. It’s better to cut your spending on your own than to be forced to do so when you retire.
My current monthly all-inclusive expense is £500. I live in Bishkek, Kyrgyzstan, one of the world’s most affordable cities. I don’t even have to be frugal.
Living on £6000 per year means I only need £150k in my retirement savings account to cover my costs.
But, in reality, I don’t need any money in my retirement fund if I keep my costs at this level. My state pension will pay my bills with room to spare.
Pay off debts
Pay off debts. The less debt you have, the more money to do fun things. Take a critical look at your finances now. Find out the 5 simple things you can do today to get out of debt.
Look after your health
Finally, let’s think about health. Health, as they say, is wealth. There is no point in saving all this money and paying off all your debts, moving to exotic nations if you cannot enjoy your newfound freedom due to ill health. As we age, we are prone to a decline in health. But if we proactively manage our health, we can live a whole and healthy life. Read more about keeping healthy here.
Global healthcare insurance
Moving to cheaper parts of the world is a bold and radical way to avoid living in poverty. But living less affluent nations does have some challenges. Take healthcare as an example. I know that health care in some places may not be as good or easy to get, so what do we do?
Solutions:
- When determining where to go, make healthcare one of your top priorities. For example, Barbados boasts outstanding private healthcare facilities comparable to those found in the United Kingdom. The cost of living is higher, although still significantly lower than in the UK.
- Obtaining foreign health insurance is critical regardless of your age or condition. Furthermore, you will save significant amounts of money that would otherwise be spent on private healthcare services.
Final thoughts
The main message of this post is:
- You can retire in style even if you don’t have any money in a retirement fund. Think “Alternatives Retirement Lifestyle”
- Now is an excellent time to spruce up your finances. Even if you think, “I have no money to manage”, take another look. Are there things you are currently paying for that no longer serve you? Could you pay lesser amounts for some of your expenses? Could you eliminate debt?
The world is full of affordable countries where you can live The Good Life and have plenty of opportunities to try new things. You don’t even have to go it alone. You can tell your friends and family about this. They may see the benefits and want to join. Well, why not? More people means more fun!
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