What is enough for a pension?

Published on
March 27, 2024

What is enough for a pension?

Pension planning is an essential aspect of financial well-being, yet it's often overlooked in personal finance discussions. As you envision your golden years, one of the most crucial questions to consider is: "Will I have enough to maintain my desired lifestyle in retirement?"

This question can take various forms, such as "How much pension will I be able to draw down?" or "How much will I need during retirement?".

Let's explore some key considerations, including determining an adequate pension, the role of the state pension, and the feasibility of relying on family support.

Defining "Enough" for Retirement

Determining what constitutes “enough” can be complex, and certainly differs person to person. It’s widely accepted that retirement income should be between 50-80% of your pre-retirement earnings, but several factors should be taken into account:

  • Your location within the UK and the associated cost of living
  • Your housing situation (renting, mortgage-free, etc.)
  • Your overall health and any related expenses
  • Any family obligations or dependents
  • The impact of inflation

While the 50-80% guideline multiplied by the estimated years until your life expectancy can provide a rough estimate, it's important to consider these additional factors for a more accurate projection.

It's worth noting that you typically don't withdraw your entire pension pot on the first day of retirement, therefore, won’t need the exact amount at retirement. It’s highly likely that your pension will remain invested, whether through a Personal Pension or a Workplace Pension Scheme, and potentially continue to compound - excluding the amount you draw down at your preferred cadence.

The Role of the State Pension

In the UK, the state pension serves as a foundation for retirement income. As of the 2024/2025 tax year, the full new State Pension is £221.20 per week. However, eligibility criteria and entitlements may vary based on your National Insurance contributions.

While the state pension provides essential support, it often falls short of meeting the recommended retirement income threshold for many individuals. Relying solely on the state pension could result in a significant income gap, particularly for those accustomed to a higher standard of living or facing unforeseen expenses. 

At an annual income of around £11,472 for those receiving the full entitlement, the state pension alone may not be sufficient to fund a comfortable retirement for many retirees.

Ultimately, while the UK state pension provides a foundational income for retirement, it is generally advisable to supplement it through additional retirement savings and income sources to maintain your desired standard of living.

Relying on Family Support

Islamic teachings emphasise the importance of honouring and caring for parents, as found in Surah Nisa, 4:36: 

وَٱعْبُدُوا۟ ٱللَّهَ وَلَا تُشْرِكُوا۟ بِهِۦ شَيْـًۭٔا ۖ وَبِٱلْوَٰلِدَيْنِ إِحْسَـٰنًۭا

"Worship Allah alone and associate none with Him. And be kind to parents".

While relying on family for support during retirement may seem aligned with these noble teachings, expectations of family support should be met with a realistic assessment of feasibility. 

Open and transparent communication with family members regarding retirement plans and expectations is essential. Discussing these matters early on can help align perspectives and ensure that any support provided is sustainable and does not compromise the well-being of yourself and family.

Family support can be a valuable supplement, it probably should not be the sole or primary source of retirement income. A well-rounded retirement plan should incorporate various income streams, such as the state pension, personal savings, and workplace or personal pensions. This diversified approach not only lessens the potential burden on family members but also provides greater financial stability and independence during your golden years.

Remember, it's never too late to start planning and saving for retirement. Whether you're just entering the workforce or nearing retirement age, proactive financial planning is crucial to ensuring a comfortable and fulfilling retirement.

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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.

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