A simple way to calculate your retirement fund

There comes a point in life when we all start to wonder about retirement. Not only do we ponder how wonderful life will be, how many places we can visit, and things we will finally have time to do, but more importantly, we contemplate whether we can afford the lifestyle we dream of for our retirement. Common questions that people ask themselves are, “Do I regularly save enough money to live comfortably?”, “How do I know how much money I will need in my retirement?”, “Where do I even get started?” Worry not, as there is a very simple way to calculate the size your retirement fund will need to be to maintain your chosen lifestyle: Soteria Retirement Calculator! 

However, for those who wish to understand the retirement calculations better and those who perhaps have their own formula, we explain below how our simple calculations are arrived at and just how effective they are when calculating the size of fund you need or your pension shortfall.

How much money do you need to retire?

That’s the first question Soteria Retirement Calculator asks and is one number that we can’t come up with for you. We can guide you, but estimating your retirement income needs is up to you. Consider how your expenses will change in retirement. Some expenses, like healthcare, are likely to increase, whereas other recurring costs are more likely to go down or disappear altogether. Firstly, you will no longer need to dedicate a portion of your income to saving for retirement. You may already be debt-free, so no more mortgages or loans to repay. Children will have likely fled the nest; therefore, there are no more school fees to fund. Your income will probably be lower, meaning your taxes will likely be lower – or completely gone if you chose one of the Soteria Retirement Plans!

Most people say they could live comfortably on 75% of the income they have immediately before retirement; however, some prefer to have the same amount of income in retirement or even more. Once you’ve established that percentage, our simple retirement calculator will reveal the target retirement fund needed to provide your desired income level. 

The 25 x retirement rule

The calculation will multiply your desired retirement income by 25. The 25 x rule is a simple way to calculate the size of the retirement fund you’ll need based on the income you’d like each year. Figuring out your annual income requirement and multiplying it by 25 will give you a ballpark figure for your retirement fund’s size. The target fund will be used to provide income each year and, in an ideal world, does not erode the original capital. Preparing this way allows you to leave a legacy for your loved ones and their families. To achieve your chosen income level, we look to take 4% of the total fund each year for at least the next 30 years.

For example, if you want to live off of £50,000 per year in retirement, you’d need £1,250,000 saved by the time you retire (£50,000 x 25). (4% of £1,250,000 is £50,000)

Something to note here is that the 25x rule is based on a 30-year withdrawal period. In reality, you may need to save more, particularly if you plan to retire early. Also, with the enhancement of health services, people are now living longer, and nobody wants a situation whereby they outlive their retirement fund and have no income in the last few years of their life. A good tip is to have multiple assets working towards providing you with retirement income, among them a property investment. 

How much do I need to save to reach my retirement fund?

A large number of people become concerned when they realise how large their retirement fund needs to be. However, most people have some existing savings, investments or other personal assets which can be factored into the target fund. By subtracting the value of your savings from the calculated target fund, we will get another number: your retirement fund shortfall. 

Based on the value of your current savings, the number of years to retirement and your target retirement fund, we calculate your retirement fund shortfall and, from there, work out how much you need to save each year to meet your objective and enjoy a comfortable retirement.

More often than not, the amount needed to save to reach the retirement goal is above what they can save each year. Many end up funding their retirement plan at a lower level than they would like to because of the fixed expenses they have today, but it doesn’t do them any harm to know what their optimum savings amount is. Knowing this is a reminder of their shortfall and encourages them to increase their contribution whenever they have extra savings capacity. Selecting the right retirement strategy is a crucial decision in everyone’s life and one you should take specialist advice on at the outset.

Let a specialist help you calculate your retirement fund – and a way to get there

Selecting the most appropriate retirement plan is a complex matter that will almost certainly require ongoing advice and changes as personal and economic circumstances change. It is, therefore, essential to take specialist advice when implementing your retirement. 

Contact Soteria Trusts, and one of our experienced consultants will be happy to discuss your retirement goals and introduce the unique range of Soteira’s retirement plans which cater for both the domestic and expatriate communities. Each plan has been developed with flexibility in mind and offers favourable tax treatment compared to other forms of retirement savings. Since expats have unique tax needs and do not always choose to retire in their home country or their latest country of residence, efficient retirement planning can be complex and, if not addressed by a professional, can result in charges and taxes that could have been avoided.  

About Soteria Retirement Plans

Soteria Trusts retirement plans are built on top of highly convenient administration platform(s) that allow you to hold assets within, offering a choice between a wide range of asset classes, including real estate. On top of that, the Trust ensures that there is tax-free growth on your assets and investments held in the plan.  

One plan, in particular, the Soteria Plan in Guernsey, offers unique tax treatment on the pension distribution for UK and US residents and for members who reside in countries with a DTA with Guernsey (Guernsey has DTA). Moreover, members can start withdrawing their pension from the age of 55! Please contact us to learn more about retirement planning with Soteria Trusts.

Please be advised that the information in this article regarding QNUPS and IHT is no longer accurate due to the recent changes announced in the UK Budget. Starting in April 2025, the regulations will have significant implications that may affect your understanding of these topics. We encourage you to stay informed and consult with a Soteria Trusts expert to navigate these changes effectively.