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    How much do you need for a comfortable retirement in the UK?

    The cost of retirement is increasingly becoming a concern, with rising food and energy prices contributing to the growing expenses. In fact, the amount needed for a minimum living standard in retirement has surged by nearly £2,000 in the past year.

    As you diligently contribute to your personal or workplace pension plan, it’s essential to have a clear understanding of the funds required to support your post-work life. Fortunately, the recently updated Retirement Living Standards, developed by the Pensions and Lifetime Savings Association (PLSA), offer valuable insights into the annual income necessary for a comfortable retirement.

    By utilising these standards, combined with our comprehensive tools and resources, you can effectively plan for the future you desire.

    For single pensioners, the minimum required to survive has increased by 18% to £12,800 per year in 2022. Retired couples face an even greater rise of 19%, now needing a minimum of £19,900 annually, representing a £3,200 increase, according to a study conducted at Loughborough University and funded by the PLSA.

    Don’t let the cost of retirement catch you off guard. Take proactive steps today to assess your financial needs and plan for a secure future. Leverage the Retirement Living Standards and our resources to make informed decisions and confidently navigate your retirement journey.

    What lifestyle do you want in retirement?

    As retirement approaches, envisioning your post-work plans becomes crucial. Will you embark on exciting vacations or consider home renovations? Perhaps a new car is on the horizon. To effectively plan for your future, it’s essential to ask yourself these important questions.

    By understanding your anticipated expenses during retirement, you can determine the necessary savings required to fulfil your aspirations. Don’t overlook the significance of financial preparedness in ensuring a comfortable retirement.

    Take the time to assess your financial goals and evaluate the potential costs associated with your desired lifestyle. This proactive approach will empower you to make informed decisions and establish a robust savings plan.

    Prepare for a fulfilling retirement by acknowledging your financial needs and setting realistic goals. Begin saving now to secure the future you envision.

    What are the Retirement Living Standards?

    The Pensions and Lifetime Savings Association (PLSA) has introduced three retirement living standards, categorised as minimum, moderate, and comfortable. These standards, developed in collaboration with Loughborough University, offer valuable insights into the financial requirements across different levels of lifestyle.

    Each standard incorporates the cost of various goods and services, forming “baskets” that track price changes over time, including home maintenance, food and drink, transportation, holidays and leisure, clothing, and support for others. These standards provide a comprehensive view of the annual income needed for both individuals and couples.

    By familiarising yourself with retirement living standards, you can gain a clearer understanding of the potential costs associated with different lifestyles during retirement. Use this knowledge to plan effectively and work towards achieving your desired level of financial comfort.

    Ensure your retirement aligns with your aspirations by utilising the PLSA’s retirement living standards as a valuable resource in your financial planning journey.

    How many Britons are matching up to these standards already?

    Achieving a retirement income of £50,000 per year is relatively uncommon among pensioners. According to Loughborough University researchers, approximately 72% of the total population are projected to meet at least the minimum standard of living in retirement. Around one-fifth of the population is on track for a moderate income level, while 8% can expect a comfortable retirement. However, it’s important to note that these figures were calculated before last year’s significant inflation surge.

    Ensuring financial security during retirement is a priority for many individuals. While reaching the £50,000 bracket may be challenging, it’s crucial to plan diligently to meet at least the minimum standard of living. By staying proactive and making informed decisions, you can increase your chances of attaining the desired level of financial stability in your post-work years.

    How much you need to save

    If the prospect of relying on a monthly income of £1,000 or less in retirement is unsettling, it’s time to take action and save more before you stop working. But how much should you save?

    We consulted researchers from Loughborough University and the PLSA to determine the additional savings required for individuals and couples to reach the minimum, moderate, and comfortable retirement brackets if they retire at age 67, even with the full new state pension. The projected amounts ranged from £0 to £530,000.

    Encouragingly, the table highlights a £0 figure: If both partners receive the full £10,600 state pension, their combined income surpasses the minimum requirement of £19,900 for a comfortable retirement.

    However, the challenging reality is that a single person aiming for a comfortable retirement must save a significant £500,000 by the age of 67, all while managing mortgage or rent payments and coping with the ever-rising cost of living.

    Take control of your retirement future by calculating your savings goals. By developing a comprehensive savings plan, you can work towards achieving the financial security necessary for a comfortable retirement.

    The annual income you will need in retirement

    Living standard Single Couple

    How much do you need to save?

    Living Standard Single Couple

    Source: Loughborough University and the Pensions and Lifetime Savings Association. (London figures may vary)

    Living Standard Single Couple

    Source: Loughborough University and the PLSA

    Plan and save accordingly to achieve the desired living standard in retirement. Consider these benchmarks as you work towards securing a financially stable future.

    How much do I need to semi-retire?

    For individuals who feel unprepared to fully retire or simply prefer to stay partially active in the workforce, semi-retirement can offer distinct advantages. In this scenario, you may require a lower income compared to complete retirement since you’ll continue to receive earnings from your employer. With semi-retirement, you have the option to supplement your income by accessing pension funds or utilising other savings before tapping into your retirement plan.

    By strategically balancing work and leisure, you can enjoy financial stability while gradually transitioning into retirement. Evaluate your financial situation, including available savings and potential pension options, to determine the most suitable approach for semi-retirement. This flexible path allows you to continue saving for the future while enjoying the benefits of reduced working hours and increased leisure time.

    Secure Your Comfortable Retirement: Take Action Today

    Are you ready to plan for a comfortable retirement in the UK? Don’t leave your financial future to chance. Take control of your retirement savings with these steps:

    1. Evaluate your retirement goals: Determine the lifestyle you desire and the income needed to support it.
    2. Calculate your savings target: Use the Retirement Living Standards provided by reputable sources like Loughborough University and the Pensions and Lifetime Savings Association as a guide.
    3. Develop a savings strategy: Set aside a portion of your income specifically for retirement savings. Consider utilising tax-efficient options such as personal or workplace pension plans.
    4. Seek professional advice: Consult financial advisors who specialise in retirement planning. They can help tailor a plan to your unique circumstances and provide valuable insights.
    5. Monitor and adjust: Regularly review your retirement savings progress and make adjustments as needed. Stay informed about changes in legislation or pension schemes that may impact your savings strategy.

    Remember, the key to a comfortable retirement lies in proactive planning and taking action today. Start building your retirement nest egg and pave the way for a financially secure future with the help from Tax Natives.

    Consecutive Gifting: a way to optimise taxes and preserve family assets?

    Consecutive gifting – Introduction

    When it comes to tax planning, consecutive gifting or “Kettenschenkung” can be an attractive way of optimizing the use of tax brackets and personal tax allowances. 

    This concept allows for the transfer of assets to family members over time, which can help to keep the gift tax burden low and preserve family assets. 

    Recently, the German Federal Fiscal Court clarified the conditions for consecutive gifting in its ruling (dated July 28, 2022 – II B 37/21).

    What happened?

    The case that was brought before the court concerned the donation of a house by a father to his daughter, who then donated half of the house to her husband. 

    The tax authorities argued that the father’s donation must be taxed as if he had donated half of the house directly to his son-in-law. This would have resulted in a higher tax burden for the son-in-law, as the tax allowance for family members is higher than for third parties.

    However, the court clarified that the determination of the respective donor and beneficiary in cases of consecutive gifting is based on whether the person passing on the asset has an independent decision-making power regarding the disposal of the gifted asset. 

    Therefore, a valid consecutive gift structure requires at least two successive gifts that are legally effective, and the intermediary donee must obtain the right to fully dispose of the gifted assets without any obligation to transfer them to another person.

    What is consecutive gifting?

    Consecutive gifting can be an effective structure in cases where a direct gift would lead to an increased gift tax burden. However, it is important to carefully consider the requirements established by case law in order to achieve the intended tax benefits. 

    If the intermediary donee intends to pass on the gift to another person, close attention must be paid to the implementation of consecutive gift arrangements. 

    The contractual agreements must clearly emphasize the power of disposition of the first donee, and all provisions must be avoided that could result in an obligation of the first donee to transfer all or part of the gift to another person.

    It is worth noting that the potential for tax optimization is not limited to private assets but can also be used for tax planning in the context of business succession. 

    The personal allowances under the German Inheritance and Gift Tax Act are higher among family members than among third parties, which can be effectively utilized to minimize the tax burden and preserve family assets.

    Consecutive gifting – Conclusion

    Consecutive gifting can be a valuable tool for tax planning and asset preservation, but it is important to carefully consider the legal requirements and contractual agreements in order to achieve the intended tax benefits. 

    With the right approach, this concept can be a powerful strategy for families and businesses alike.

    If you have any queries about consecutive gifting in Germany, or German tax more generally, then please do not hesitate to get in touch.

    The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

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