"How Much Do I Need To Retire?"

This is a question that we are probably asked more than any other.  The short answer is, 'probably considerably more than you are likely to have available'.  However, it is actually the wrong question to ask. What you need to know is not how much capital you need, but how much income you are going to require.

Even then, there is one massive imponderable that will have a significant effect on the amount of income that you're going to need and for which there is no answer.  Namely, how long are you going to live after you have given up working.  We have recently seen press reports that suggest more and more people are going to live to 100 years old, and whilst that may only be attained by a minority, there is every likelihood of reaching 85+ and so if retire at 65 you are going to need 20 years of income.  I have yet to meet a pensioner who wishes they had saved less for their retirement.

The good news is that you are likely to need less income to live on than you did when you were working. There will be no commuting costs, your lunch costs are likely to be less and you won't have to spend so much on clothes. Hopefully you will have paid off your mortgage and the children will have left home. You will probably have to pay less tax, you won't be putting money away from your retirement and various discounts are available for retired people. Of course against that inflation is going to erode your capital and you may want to spend more time on holiday or on a hobby of some sort.

The long and the short of it is that you should probably have saved more, but unfortunately it's likely to be a bit late to make that realisation. One option available to us is to work longer and this is certainly viable as more and more firms are losing experienced people to retirement with insufficient younger people to replace them. Working for an extra two or three years, even if it's only part-time, can make a very substantial difference to your retirement plans.

Looking at it another, albeit rather simplistic way, if we reckon on  living for 25 years we could spend 4% of our capital each year to end up with nothing at the end.  Therefore if we wanted a pension of £20,000 we would need to have savings of £500,000 when we retired at 65. It's a bit of a sobering thought.  It also rather assumes that the interest on savings will provide us with a hedge against inflation and we are going to throw off the mortal coil at our predetermined 85.

So if we need an income of £20,000 when we retire we have to look at alternatives if we don't have a £500,000 nest egg. We have already mentioned the possibility of working longer, and in many ways this is the simplest solution for the majority of people. Discrimination on the basis of age is now illegal and so it's worth asking the company you currently work for what their policy is for older workers.

Another possibility is acquiring rental property by investing some of your savings and using borrowed money in order to buy a suitable property. However, for many pensioners the idea of borrowing money once we have retired from full-time employment goes against the grain, especially in a falling housing market. The anticipated rental income will also be eroded by agency fees, maintenance, insurance and periods when the property will be vacant. So the reality is that you are likely to require several small properties to generate an income of £20,000 a year.

Starting a home-based business is a possible option and there are a number of ideas on this website to help you get started. Starting a business from home is quite straightforward, but you don't want to find yourself in a position where you are obliged to stay at home for the business to survive. The answer may be to have a business based on the Internet that can be run from anywhere in the world with the use of a laptop and a broadband connection.

If you don't want the uncertainty of your own business you might consider one of the many jobs that are available online through websites such as www.peopleperhour.com; www.Elance.com or you could get some further ideas from www.onlinejobsecrets.net.

Even if you are lucky enough to have a works pension in addition to a government pension, it is often useful to supplement your pension by some form of part-time work from home.  If nothing else, it could provide the wherewithal for some of life's little luxuries that all pensioners deserve from time to time.