Q. If we were to aim for a pension of approx £15000 per year, what total pension pot + savings would we need to aim for in our pension planning at age 60?
A. Thats a tough one, as it will depend upon various factors.
Two of the main options to consider are annuity rates on pension funds and returns from savings on your invested capital.
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For pensions, youd need a pension fund of approximately £250k to generate 15k pa gross income, based on an annuity rate of 6% pa, which is a typical annuity rate for a 60 year old male. Thats likely to be a level annuity rather than one that increases with inflation. Youd also have to decide if you want to build in a spouses pension as well as how long a guarantee (they are quoted as 5 years as default) you want. If you have a Personal Pension fund, make sure you get the best annuity rate on the open market.
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If its from savings, you may need £300-500k (the amount will depend on whether you want to go for a ‘zero out strategy and exhaust the total fund by age 90/100). This assumes a rate of return of 3.75% gross, which is variable. As you can see, the rate of return on the savings is lower than what you may receive with the annuity, meaning you may require a larger pot of money by age 60. Of course, these options are not exclusive and you could combine them.
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You need to take any state pensions into account.
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And any occupational pensions.
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And any other sources of cash, such as any inheritances that you might expect, even if its not for a number of years.
I hope this helps in some way…
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