Although retirement signifies the end of a person’s working life, retirees are still tasked with one important job: making sure their savings will last a lifetime.
What many miss, though, is that most of this work needs to be done before you retire – when you’re still earning and saving towards your future.
Indeed, if you have been paying into a workplace pension for many years, you may not have thought about whether you are on track to retire at the age you want, or if you will be able to maintain your lifestyle on the money you have saved. There is evidence to suggest that most people are behind – Pensions Age reveals that just 14% of people are on track to retire at the age they want.
Keep reading to discover how to measure your retirement expectations against reality and how you can move the needle while you’re still working.
Measuring your retirement expectations against reality
In the Pensions Age study, the average participant wanted to retire at age 61. In reality, most only had enough saved up to retire comfortably at 83.
If you have never been through your retirement finances with a fine-toothed comb, start by:
- Accessing your workplace pension pot online, or requesting a statement from your provider
- Collating pension information from your old workplace pension pots
- Examining other sources of retirement income you might use, such as your ISAs
- Checking your State Pension forecast to assess how much you are likely to receive.
Your workplace pension app might have forecasting technology that projects your pension income based on your retirement age, different levels of growth, and how much you put in over time. If it doesn’t, we can help you work this out, or you can access pension calculators online.
This is a crucial first step on the road to retiring with enough money to sustain your lifestyle. Bury your head in the sand today, and you may find that you are disappointed later.
Small increases to your pension contributions today could make a big difference in the future
You are likely to have been automatically enrolled into your workplace pension – meaning you have never had to decide how much to put in each month.
While auto-enrolment is a fantastic starting point, it is worth reviewing whether you can increase your pension contributions and asking your employer to do the same. We are happy to discuss with you what an affordable increase to your contributions could look like, and the impact that this would have on your retirement.
Standard Life research reveals just how impactful a small increase in monthly contributions could be.
- Someone starting a role at 22 years old on a salary of £25,000 and paying minimum auto-enrolment contributions could build a pension pot of £210,000 (adjusted for inflation) by the time they retire at 68.
- If they increased their monthly contributions by just 2% from the outset, their final pension pot – under the above assumptions – would stand at £262,000.
You may be older than the person in the above example or earn more. In any case, you may not notice a 1% or 2% increase in your pension contributions when you receive your payslip – but your retirement fund could be significantly larger as a result.
While it helps to start young, it is never too late to put more into your pension.
Remember that the pension Annual Allowance limits your tax-efficient contributions to £60,000 a year – although this limit is lower if you are a very high earner or have already flexibly accessed your pension. If you’re unsure whether increasing your pension contributions would mean you breach the Annual Allowance, speak to a financial planner for guidance.
3 simple ways to make sure you retire on your own terms
Retiring on your own terms requires thoughtful planning. Here are three tips to get you started.
1. Think about your top 3 retirement priorities
Retirement looks different for everyone.
You might be excited to throw yourself into travel or play a greater role in your grandchildren’s lives once work is out of the way. Alternatively, you may see retirement as an opportunity to embrace life at a slower pace and enjoy some well-earned peace and quiet.
The point is, your ideal retirement will consist of important priorities that you don’t want to compromise on. Some examples include:
- Retiring under 60
- Travelling the world
- Focusing on health and fitness
- Participating in your grandchildren’s lives.
Here’s an exercise to try: take a pen and paper and jot down some thoughts about what your ideal retirement might look like. Certain themes will emerge, and these are likely to become the central focus of your retirement plan in the years to come.
2. Acknowledge your current retirement readiness and make a plan
Although you might be nervous about taking a proper look at your retirement savings, it is worth doing this sooner rather than later.
As you have read above, tweaks to your pension contributions could make the difference between achieving your desired retirement age and having to work for several more years.
So, take the time to look at whether you are on track to retire as you would like, using your priorities and the financial metrics mentioned earlier to guide you. Once you know what you are dealing with, you can begin to make a plan for filling the gaps – or if you’re already on track, it’s time to start planning for the fun bits of retirement!
3. Work with a financial planner
Financial planning looks at your wealth as a vehicle that will take you where you want to go – with you in the driver’s seat.
Read more – Revealed: The hidden benefits of long-term financial planning
If there are gaps between the retirement you want and what you can afford, a financial planner can advise on anything from tax efficiency to your spending habits, helping you remain accountable and carve out the future you want.
At Apogee Wealth Management, our highly experienced financial planners are here to support your retirement goals, whatever they look like. Whether you are looking to consolidate multiple pension policies for the peace of mind that your benefits are working hard for your retirement, or whether you would like to obtain a better understanding of what retirement could look like for you, we would be happy to help.
Email financialplanning@apogeewealth.co.uk or call 01565 757811 to learn more about how we can work with you to achieve your retirement goals.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
Workplace pensions are regulated by The Pensions Regulator.
The Financial Conduct Authority does not regulate tax planning.
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