Is a £250,000 pension pot enough to retire on?

What would your retirement income be with a £250K pension pot? Knowing how much you can get makes it easier to plan for your golden years.

(Image credit: Getty Images/Maskot)

By Marc Shoffman

The high cost of living means it remains crucial to have a large pension pot to prepare for retirement and ensure you have enough to fund your golden years.

UK inflation may no longer be in the double digits but it remains high amid rising energy bills and geopolitical tensions as well as Donald Trump’s trade tariffs.

There is also uncertainty about the future of the state pension and the triple lock, meaning it is unclear if you will have these payments to fall back on when you are ready to retire. It is therefore important to prepare yourself financially.

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It is hard to predict what your pension pot will be worth in the future after decades of saving for retirement, especially with volatility in recent years, but knowing how much income you can generate can help you plan and set a target for your golden years.

“One of the big questions when considering retirement planning is how much you are likely to need,” says James Corcoran, chartered financial planner at Lumin Wealth. “None of us have a crystal ball and there are some big unknown factors, such as how long you are going to live, whether you may need long-term care, and what type of support you may wish to provide to family members.

“However, with financial planning, what we will typically do is look at various scenarios to see whether people are on the right track for the retirement they want, and then see how we can help them achieve that. Cashflow forecasting can be a very helpful tool here.”

Can you retire on £250,000 ?

Let’s use the Snowball for an assumption, although you should never assume, as it can make an ASS out of U and ME.

We will use the 100k of seed capital, if you can add fuel to the fire you should be able to shorten the time lines.

AN ANNUITY

Lets start with the 250k and you intend to take out an annuity. Current rates for a 3% uplift around 5.5k.

OR

Canada Life figures show the 65-year-old with a £100,000 pension pot could buy an annuity linked to the retail price index (RPI) that would generate a starting annual income of £3,896. That’s up from £2,195 in the New Year following a 77% spike in rates this year.
Oct 22

Remember you have to surrender all your capital.

THE 4% RULE

Current value of the control share VWRP £129,476.

To get to 250k we will have to assume a time line.

Compounding at 7%, it could be more or a lot less, let’s say ten years.

A ‘pension’ of 10k p.a.

A SNOWBALL

The current income for this year will be 10k and in ten years it could be

a pension of 20k p.a.

Even if the figure for the Snowball was less than a 4% pension, the fact that you have a plan with a defined end and you can check your progress and pencil in next years income, it could be better than a 4% pension plan.