Are you nearing retirement and planning to spend the happiest years of your life abroad?
Retiring abroad can be one of the best decisions you ever make. Of course, it takes time and effort to plan, organise and execute everything properly. It’s likely that your most urgent question is money related: how much do you need to retire comfortably to the country of your choice?
The Which Magazine Retirement Report says that, in 2020, a couple needs an annual income of £25,000 after-tax for a comfortable retirement lifestyle in the UK. But what if you want to retire abroad?
Will I be better off retiring abroad?
The above-mentioned £25,000 will go further if you retire to a country where you can benefit from at least one of the following conditions:
- Cheaper properties
- Lower cost of living
- Lower taxes
The good news is that all popular European retirement destinations are cheaper to live in than the UK.
Basically, if you retire somewhere warmer and sunnier in Europe, you can be better off. Research on Expatistan shows the following:
- Spain is 28% cheaper than the UK
- France is 6% cheaper than the UK
- Cyprus is 24% cheaper than the UK
- Italy is 22% cheaper than the UK
- Portugal is a whopping 34% cheaper than the UK
Of course, these numbers are averages and the cost of living is heavily dependent on your chosen location. But on the whole, if you go like for like (retiring from a medium cost of living location in Britain to a medium cost of living location in Spain, for example), you will be able to have the same lifestyle for less money.
Having established that, in most situations, by retiring to Europe a British couple with an after-tax income of £25,000 can have a very comfortable lifestyle, let’s move on to the most crucial question:
How much do I need to have in my pension pot to generate an annual income of £25,000 after tax?
When you reach state retirement age, you will receive a state pension. According to market research magazine Which, an average state pension for a couple in 2019 was £16,262 a year. This is more than half of your annual target. The rest comes from:
- Your workplace pensions
- Private pension schemes
- Your savings
- Property incomes (renting out and/or equity release when downsizing and buying a cheaper retirement property)
- Dividends & shares
Most would-be retirees come to retirement with some form of a private pension scheme in place, which you can use either as an annuity or a drawdown income.
The Money Advice Service website calculator shows that a 55 year-old male might get around £4,000 per year for a £100,000 pot with a single life annuity.
A couple can get a comfortable post-tax income of £25,000 a year via a joint-life annuity, if they have a pot of £262,500, according to Which’s research calculations. This number includes an annual state pension of around £14,000 for a couple.
Planning ahead
To make sure you retire comfortably, it’s crucial to start planning your money well ahead of your overseas retirement.
You have a choice of how you access your pension pot both at and before retirement. Knowing your options can help you make a better decision.
If you need help to determine the most appropriate way to secure, grow, and take income from your pension savings, our friendly team at Abbey Wealth will help you clarify your pension choices and plan for successful retirement abroad.