Can You Retire With Just £100,000?

Is it possible to retire with £100,000?

Perhaps you have started saving for retirement later in life and have not been able to build as big a pension pot as you would have liked.

Does this mean you are destined to be working well into later life?

Or perhaps your younger and you are trying to plan how much you need to save for a decent retirement whilst at the same time balancing having a good life now.

In order to test some scenarios to show what may happen if you retire with £100,000, we are going to make some assumptions.

For the purpose of these scenarios I am going to use the spending figures from the Pension and Lifetime Savings Association Retirement Living Standards research.

The next assumption I am going to make is that retirement will start for a single person or a couple aged 67 today and will last until age 100.

Finally, we’ll assume that the £100,000 is in a defined contribution pension.

So firstly, let’s take a look at what a £100,000 pension could buy you if you were to secure an income using an annuity from the open market.

Currently, the best annuity rate is £7,196 but this does not include any lump sum and stops as soon as you die with no pay out for a spouse or civil partner. Also, it stays fixed at this level for the rest of your life.

However, we have not included any State Pension.

The full State Pension which at the time of filming is around £11,500 per year.

Now, if we add the State Pension of £11,500 per year to the inflation linked annuity of £3,550 you will have a total income of £15,050 gross per year (£14,554 after tax). Plus, a tax-free lump sum of £25,000.

You can therefore cover the ‘minimum’ retirement spending standard for a single person meaning it could be possible to retire with £100,000.

So, we’ve worked out there is a way to retire with £100,000 even if you are a couple.

But perhaps the quality of life under the ‘minimum’ standard is not enough for you. You want to do more. Is this possible with just £100,000? Potentially yes, but it’s going to require a number of tweaks and a few lifestyle changes.

Two State Pensions are only going to bring in £23,000 per year between you. So, you are £20,100 per year short at this stage.

Before looking at how to use the £100,000 pension it’s worth exploring other ways to bring in income.

Nowadays it’s much easier to earn money without it feeling like work as after all we are trying to produce retirement here, not retirement where you still work.

Longer term, it’s something you may not want to discuss but if you have a parent alive then there could be the possibility of receiving an inheritance one day.

Now, I would never advocate going into retirement relying on an inheritance as lots of things could happen that mean the inheritance never actually reaches you, the main one being the cost of long-term care.

So, let’s put some of this together and test a scenario for a couple retiring at State Pension age 67.

We will assume that one of them is able to earn £1,000 per month through dog sitting and walking up to age 75. Definitely possible as my own mum does it!

They then receive a £270,000 inheritance lump sum at age 75. I have chosen this amount as this is the current average UK house price minus selling fees.

They still have the £100,000 pension and we will keep this in a pension invested in a ‘balanced’ portfolio.

First of all, we can see that the scenario as described as above, trying to live a £43,100 per year inflation adjusted lifestyle does not really work with only a 17% chance of success.

Let’s see if we can improve this situation with a few tweaks.

Firstly, lets look at the investment strategy for the pension and the future inheritance. If we were to change the underlying investments for the pension to a global equity portfolio and then use the same portfolio to invest the eventual inheritance this helps improve results.

We are now looking at a 57% success rate. So certainly possible but perhaps a little risky.

Another thing we could do if we don’t want to delay retirement or earn any more income is to change the level of withdrawals we need to make from the pension and future inheritance.

For example, rather than constantly withdrawing more to keep up with rising cost of living regardless of what happens to stock markets, we will instead only increase our withdrawals to match inflation when stock markets have delivered positive returns.

This massively improves the picture again and produces a 92% success rate. The only downside is that over time, you have to adjust your spending and tighten your belts a bit.

So, there is definitely the potential to retire with £100,000.

The point is there are always options to explore and it will depend how desperate you are to retire vs how much you want to spend in retirement.

Don’t think you can’t do something until you have looked at all the possibilities.

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