It doesn’t matter how old you are: if you’re earning, you should be thinking about your plan for retirement. Too many people come to us saying they wish they had started earlier because they realise just how expensive it is to retire today – let alone how expensive it will be in the future.
But no matter your age, the core retirement planning principles stay the same. Here’s what you should be thinking about when planning for your future.
How much money do you need in retirement?
To begin your plan, you need to determine how much money you’ll need in retirement. It’s a good idea to make a budget, breaking down your potential spending into two categories:
- Essential expenditure: This is the money you need to cover your basic needs, such as heating and eating. It will include housing costs, utility bills, groceries and day-to-day travel.
- Non-essential expenditure: This is money for the things you do in your day-to-day, including eating out, leisure, holidays and hobbies.
However, no one can predict the future, so we’d also recommend setting funds aside to help you cover unexpected costs.
While it’s okay to be ambitious, make sure that you’re setting yourself achievable financial goals.
Work out your retirement income
You now have an idea of the money you need to live the life you want, so you should next check whether your income forecasts will allow you to lead it.
Begin by checking the Government’s state pension forecast tool to estimate how much state pension you could get. You should also contact your pension provider(s) to find out how much you have in your pension pot.
If you have a defined benefit pension, you can ask for a retirement quote. If you have a defined contribution pension pot, check how much is in it and add the sum to any other savings and investments you have. That’ll tell you how close you are to your retirement targets and whether you need to save extra to achieve them.
Make sure to trace any lost pensions, too. If you’ve lost track of old pensions, the Government runs a free tracing service.
Assess your income options
- Defined benefit pensions. These will typically begin paying you a guaranteed income from your retirement age. The amount you receive will depend on your salary and how long you worked for the employer.
- Defined contribution pensions. These days, most pension schemes are defined contributions. You can access these funds from age 55 as a tax-free lump sum or in instalments.
- Other income. Why rely solely on your pension pot to fund your retirement? Many retirees draw from their savings or earn an income from investments to help them meet their retirement goals.
Make your retirement plan
With all the facts in front of you, you can now make a retirement plan that outlines how much you need to save and the deadline for hitting that target. You’ll need to consider a few more factors before setting this in stone:
- Your retirement date. When do you plan to retire? In some cases, you can phase your retirement by switching to part-time work. Just check with your pension provider when you can start taking your pension.
- Tax. The money you receive from your pension is taxed in the same way as any other income from employment or investments. Ensure that you’re taking your tax liabilities into account when calculating how much income you’ll need.
- Debts. Tackling any outstanding debt before retiring can make it easier to meet your retirement goals.
A financial adviser can help you develop a retirement plan that protects your financial future, sets you up for success and gives you greater peace of mind as you enter this new phase of life.
Get in touch with us to discuss your retirement plan.