The question of how much money you need to save for your pension annuity will largely depend on your life expectancy and the lifestyle you will have come accustomed to. Two recent studies have shown that pensioners in the UK get a raw deal compared to many other developed nations, so don’t expect to much help from the state in retirement, other than the usual state pension. Figures from the ONS say that the UK has one of the worst arrangements for pensioners income when compared to previous salaries. Â Those who are saving for a pension who intend to buy an annuity may be wonder how much to save for an annuity?
Firstly work out your life expectancy using a life expectancy calculator, and then work out how much you will need to live comfortably each year. Be realistic about this, you cannot expect to receive your working salary each year. So multiply your annual required income by the number of years you think you will live and this should give a rough estimate of how much you need for an annuity. Remember to allow for increases in inflation and also that if you take out the tax free lump sum 25% at the start, your fund value will be reduced by 75%. If you find there is a short fall, you could consider delaying retirement, working part time in a different job or perhaps opting for equity release, where you sell part of the equity in your home in exchange for money.
