Many of us are seeking to understand whether we will have enough to retire on. As the time edges closer you will no doubt start to ask yourself when you can afford to retire, whether you need to save more and what will be left to pass to your loved ones.
There are many unknown variables such as inflation, interest rates and investment returns. No one can know how long we are going to live, and how long a retirement period we need to plan for. While there is no simple answer as everyone’s circumstances are unique, there are actions you can take which will give you the best possible chance of achieving the sort of retirement you would like.
- Consider the retirement you envisage
We will all have our own thoughts and plans on what retired life would ideally look like, and what is important to us. The first thing to ask is what you would ideally like to achieve in your retirement, and what your aspirations here are. You may want to continue to work part time or stop completely. Do you plan to move home, travel the world or spend more time with family? Your plans may give you some indication as to how much you could need per year.
- Check your current pensions position
It is necessary to first establish where you currently are in your pension saving, to help determine where you need to be. This means getting a firm grip on the retirement savings you currently have – the amount in each pot, how they are performing and gaining a good understanding of your options for them.
- Obtain a state pension forecast
Final salary pensions are becoming increasingly rare but most of us will be entitled to a state pension, which will be a source of secure income in later life.
The state pension has gone through many iterations over the years and it is not uncommon to find out your entitlement may not be the amount you were expecting. It is worth obtaining a state pension forecast to check your individual position and establish whether any further action is needed. If you are missing any years of National Insurance contributions, it may be possible to pay to ‘top up’ for missing years from the past 6 years in order to receive a higher state pension.
- Work out what other assets will be available to you at retirement
Of course, your pension may not be the only asset available to you in retirement, and there will frequently be other assets that you will be able to call upon in the future. This could include cash, ISAs, possibly a business, and quite often property (although it should be noted that it is potentially dangerous to be relying upon your main home as a retirement pot given that it is not a source of readily available liquidity, unless you have plans to downsize or similar). It is therefore necessary to consider the situation holistically, rather than looking at pensions in isolation.
- Understand what your outgoings are
Once you know where you stand in terms of assets and the potential income these may provide, the other side of the equation is how much you expect to spend in retirement. In some ways this is a bit of a chicken and egg question, as what you would like to spend will no doubt be influenced how much you can afford to spend. It can be an incredibly useful (essential even) exercise to look at your outgoings and identify what are non-negotiables, what are nice-to haves, and to work backwards from there to establish a budget in retirement.
How can financial planners help with retirement planning?
Our Wealth Planning team can work with you to help formulate a retirement plan, tailored to your individual needs and circumstances.
As part of this exercise we will seek to understand your aims and ambitions, help establish your current position and understand any nuances associated with this. We can then seek to take advantage of any opportunities to put you on a good footing for retirement, addressing any threats and risks to this, before implementing any changes that may be appropriate as you approach this turning point.
From there, we use cash flow modelling tools to build out different scenarios and project how your financial position may develop over time, which can help visualise how your retirement may look. Given the future unknowns we are dealing with there is no crystal ball, but we can make reasonable assumptions on variables like future returns, inflation and life expectancy. By stress testing these models it can help plan for different outcomes – giving you the comfort that you are approaching retirement as prepared as possible.
This planning can act like a roadmap to give you an idea of the direction you are travelling in for your retirement. Life is unpredictable, but by referring back to the plan frequently and making necessary adjustments as reality starts to play out, it can help ensure you stay on course. Early retirement planning can reap major rewards, but there is never too late a time to take action.
The information provided in this article is of a general nature and is not a substitute for specific advice with regard to your own circumstances. You are recommended to obtain specific advice from a qualified professional before you take any action or refrain from action.
