How much do I need at retirement to cover my basic needs?

This is the minimum income that you would require in your retirement to retain your basic quality of life.

Your basic needs typically include the money you need for:

    

The two most important questions you probably have are:

  

Your accredited financial advisor will advise you of the income you can expect for the different pension options. 

For further information regarding appointing a financial advisor and preferential rates offered to UCTRF members, click here.

You can also use the  Retirement Calculator to give you an indication of the income you can expect based on the Board’s endorsed annuity strategy.  You can also use the Life and Living Annuity Calculators for an indication of the income you can expect to receive from a specific type of pension.

You also need to think about your expenses once you retire. It is very likely that you will need less money after you retire because:

On the other hand, some of your expenses may go up. In particular, your medical expenses usually increase when you get older. The reality is that many people end up retiring without enough money to meet even their basic needs in retirement. 

As a rough guideline only, you should be able to have a reasonable retirement if your income is some 70% to 80% of your total salary just before retirement.

What will cause me the greatest regret in retirement (the risks)?

Most people associate the word "risk" with bad outcomes. However, the flip side is that taking risks also creates the opportunity for very good outcomes. In managing your risks, you should be most concerned about minimising the chance of outcomes that cause you a great deal of regret.

As a pensioner, there are three important risks you must deal with in how you invest your retirement savings in order to meet your needs, namely:

• Investment risk 
• Inflation Risk
• The risk of living too long!

Investment risk 

Investment risk refers to the chance that the investment returns you earn on the money you invest at your retirement are insufficient to provide a reasonable income throughout your retirement.

The investment risk depends on the asset class in which you invest your money and on how long you can invest the money before you need to use it (i.e. your investment horizon). Investment risk is dealt in detail in the section dealing with investment choice.

Inflation Risk 

One of the big risks you face in retirement is that inflation reduces the buying power of your pension. 
It is very difficult to predict the future course of inflation (i.e. it may go much lower or maybe it could increase sharply). It is therefore important that you invest your retirement money, or at least that part which covers your basic needs, in such a way that your income goes up each year more or less in line with inflation.

Risk of living too long (mortality risk)

This seems like an unusual risk - but the longer you and your dependants live, the more money you need whilst you are on pension. Many people have a pessimistic view of how much longer they will live once they retire. The following table shows, how long, on average a male and female are expected to live if they retire at different ages.

The above figures may well understate the position, because as medical research improves (and it is improving at a dramatic rate currently), the life expectancy of people will increase. 

In meeting your basic needs, we would suggest that you should not take on any excessive investment, inflation and mortality risk. Ideally you would want a pension that will:

    

Optimise your tax position

Most people’s first priority is to secure a pension to meet their basic needs.  If you have any debts it may be sensible to pay these off immediately using your tax-free benefit. If you do this, you reduce the amount of income you need to cover your basic needs.

Expressed another way, you should try to structure your pension in a tax-efficient manner. What to do with any tax-free amount is a vital part of this tax-efficient structure. You should consult a financial advisor to advise you how to do this. For further information regarding appointing a financial advisor and preferential rates offered to UCTRF members click here.

Retirement Age

If you want to retire young, you will need to build up more retirement savings, simply because you (and your partner) are going to have to live off these savings for longer.

Let's say you want to retire with an income equal to 70% to 80% of your total salary just before retirement. The following table gives you some idea of the number of month's salary you need to provide for such an income depending on the age at which you retire. 

Single Person CPI Linked

Chosen retirement age	Number of month's salary required *	Multiple of annual salary required
55	162	13.5
58	154	12.8
60	147	12.3
63	138	11.5
65	131	10.9

* The above amount of money provides for your retirement income to increase each year in line with inflation. It does not provide for any pension to be paid to your spouse after your death. 

Married Person CPI Linked

* The above amount of money provides for your retirement income to increase each year in line with inflation. It also provides for a pension of 75% of your income to your spouse on your death. 

If you want to retire at age 55 and you need an income of some 70% to 80% of your salary at this time, you will need to have built up retirement savings that are about 162 times your monthly salary (i.e. 13.5 times your annual CoE).

On the other hand, if you plan to retire at age 65 (i.e. work 10 years longer), you will need to have built up about 131 times your monthly salary (i.e. 10.9 times your annual CoE). So, you have 10 years longer to save for your retirement and you need less retirement savings. This clearly shows how difficult it is to retire early and have a reasonable pension!

We encourage you to make use of the Retirement Calculator if you want to know whether you are on track to have enough money when you retire.