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Jane writes: My husband and I have a mortgage on our house and a mortgage on a flat we let out. We also have some savings, and both have pensions – what else should we be doing to help our pension along? Should we sell the flat and invest that money elsewhere? We both feel we will probably be made redundant sooner rather than later and it will be hard to find a job as we are both in our late fifties. How much do we need for retirement?
Alina Khan, The i Paper’s money coach reporter responds: After receiving your email, I needed to get a better idea of your financial situation as a whole.
After some back and forth you told me you and your husband are both 58 and have a 20-year-old son who will be moving back into your family home after finishing university.
In terms of the properties you own, you told me the flat you let out is worth around £400,000 and has a mortgage of £205,000 and you mentioned you haven’t made much money on it. While your family home has a mortgage of £177,000.
You have £600,000 saved across mortgages and pensions.
To answer your question on how much you need for retirement is very dependent on what you wish to do in retirement and the type of retirement you want to have.
For reference, Pension UK’s retirement living standards say that for a two-person household to have a “moderate” standard of retirement they would need £43,900 a year, though this assumes they have no mortgage.
You told me you would like to do some travelling and stay living in London once you are retired.
Adrian Murphy, chief executive of Murphy Wealth, said you have a solid foundation in place with your combined £600,000 across savings and pensions.
He added: “Your mortgage seems relatively small by London standards, which would suggest you have built up a good level of equity in your home as well. And your rental flat has a decent amount of equity built up in it too.”
If you want to stay living in London, which is an expensive city to live in, you will need a large pot to be able to draw on and one that will last you through retirement.
In terms of what to do with your flat, Murphy pointed out buy-to-let properties seem to offer high returns on the face of it but particularly in the past couple of years, with interest rates being high, returns have not lived up to that expectation.
He said: “If you feel like you’re not making any money on the flat, then you might want to consider selling it.
“With the approximate value and remaining mortgage, that could free up another £200,000 for you to either add into your pensions over the next few years – which would provide a boost in the form of the tax relief provided by the government – or invest through stocks and shares ISAs for tax-free returns. Bear in mind, you can contribute up to £60,000 to a pension each year and £20,000 to an ISA.”
When you pay into your pension the government usually adds a top-up called tax relief, which is the money you would normally pay in income tax.
In terms of ISAs, you can currently invest £20,000 into one, you can choose to put the full amount into one type or spread across different types as long as the total amount put in does not exceed the yearly allowance.
However, it is important to note from April 2027, you will only be able to put in a maximum of £12,000 into a cash ISA. You can invest the remaining £8,000 into a different type of ISA.
Murphy said: “If redundancy is a realistic risk in the next few years and you expect to be unemployed for a while or have to retire early, then that is another point to consider.
“Depending on how your savings and pensions are split, you may have plenty of cash to hand – but we always recommend having around six months’ worth of expenses available at any time to cover emergencies or unexpected changes to your circumstances.”
Taking into account your financial situation as a whole, Murphy believed a little bit more money in your pension or savings may be necessary.
He added: “Assuming you’ve been working with your current employers for a while, you should be entitled to a reasonable amount of money as a pay-out – but you cannot necessarily rely on that.
“You may also want to bear in mind the cost of retraining or setting up a business, if you decide to pursue either of those routes instead of returning to your existing professions. But, anything beyond these potential costs and the standard cash buffer should be invested to give your retirement pot the best chance of growing.”
Try to think of the lifestyle you want in retirement, the costs that will entail and when ideally you would like to stop working.
Also think about how much roughly you think you would be able to live off of each month taking into account the tings you want to do retirement.
This will provide you with a greater understanding of exactly how much you need. I wish you a lovely retirement when it comes.
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