Retirement Planning: How to plan for retirement?

Retirement is a big life change, and it can be daunting to think about – and some might not want to think about it until it’s actually time to retire. No matter what you’re thinking of doing however, when it’s time for retirement, it’s essential to have a plan to help you get there. Going into retirement without one may be ok for the very few, but for the majority it could be a disaster. Often, people will look to retirement without being clear on how much money they’ll need – so why not plan ahead? It simply makes sense to do so. That way, even if your plans or circumstances change, you’re clear on what you need to do and what money you have to get you there 

You might have questions, like what is a good pension pot? Or what is enough to retire on? Or, how can I maintain my current lifestyle in retirement? To find out everything you need to know about retirement plans, including how we can help you and the best retirement strategies, here’s our guide on how to plan for retirement. 

What is a retirement plan?

A retirement plan lays out your retirement lifestyle aspirations, what income you’ll need to deliver that lifestyle and, importantly, what is needed to achieve this goal. It should map out the decisions you might need to make and things you might need to do to get the retirement you want. In a retirement plan, you’ll need to look at the different sources of income you have and the expenses you incur, to put in place a savings plan. You will also need to examine your assets and liabilities, so any money you might owe, and your attitude to risk when investing your money 

How much money you’ll need in retirement will differ from individual to individual, but we can help you make a plan that shows you how much money you’ll need to meet your retirement goals, whilst reviewing your current position to show you whether or not you’re on track. 

Through a process called cash flow planning we can take a look at different scenarios to see how your finances might look in the future and adapt these over time if your plans were to change. For example, if you were to bring forward your retirement date a year or two or increase your annual spending. 

How you plan for retirement will depend on your age – retirement planning in your 20s and 30s will be very different to retirement planning in your 50s, for example. 

Why should you plan for retirement?

Retirement planning is an ongoing process, but one that is best started as early as possible. The sooner you start the better, but not all is lost if you leave it later in life. That said, with the benefit of compounding interest over time, those who start saving in their 20s, will likely have to save less over their lifetime than those who start saving in their 40s or above. So, starting early should give you the greatest chance of a stress-free financial future.  

People today are living longer than ever, with the average UK life expectancy now 79.3 years old for men and 83.1 years old for women. Of course, there will be many people living longer than this too. While this is good news, it does mean that your money may need to last longer. While we can’t predict the future, it makes sense to plan for at least 20 years of retirement, and our cash flow planning forecasts up to age 100, to give you the best chance that your retirement plan will see you through your entire lifetime. To get an estimation of how long your wealth, excluding your property, might last, you can use our retirement planning calculator

Then, there’s your health to consider – you might have to pay for care at some point, and this can be expensive. Inflation is currently rising at a rapid rate, so it’s essential you factor this into your planning, as it can seriously damage the value of your savings in real terms. For retirees, the cost of living can increase more quickly, as they tend to spend a higher proportion of their income on goods and services often subject to higher rates of inflation. 

By planning for retirement, you can also help to protect yourself or your loved ones in the event of serious illness or death – life assurance and critical illness cover tend to become more expensive with age, so it’s often advisable to sort out protection before retirement. 

Are retirement plans worth it?

In short, yes. It might sound cliched but if you fail to plan, you plan to fail! It’s probably never been more important to plan your retirement, and there’s no time like the present to get started with a retirement plan. 

Not everyone enjoys the benefits of a final salary pension scheme, also known as a defined benefit scheme, and the age at which you can access the state pension continues to increase. The current state pension age is 66 with two further increases set out in legislation; a gradual rise to 67 for those born on or after April 1960; and a rise to 68 between 2044 and 2046 for those born on or after April 1977. As a result, the more prepared you are, the better your chances to help you look after your money and retain your desired standard of living throughout your retirement. 

If you’re thinking of planning for retirement, why not get in touch for a free initial consultation

What are the best retirement plans?

There are a number of different retirement plans, and together we can work to determine the best plan and tailor it to your needs. The best retirement plan for you will depend on the pensions and savings you currently hold, and the various tax benefits and allowances that you may be able to take advantage of when saving. 

In the UK, there are two types of pensions: defined benefit, more commonly known as final salary pensions (as mentioned above) and defined contribution pensions. Defined benefit schemes are becoming rarer and are now generally only available for public sector workers or through older workplace schemes. They pay you a guaranteed income for life, that is generally based on both your salary and the length of time you’ve worked for your employer and are extremely expensive for employers to fund.  

Defined contribution pensions, sometimes known as money purchase schemes, are based purely on how much you and/or your employer put in and the investment returns you get from the underlying assets, which build up as a pension pot

With a defined benefit scheme, all costs of operating the scheme are borne by the employer, but with the defined contribution scheme, you are responsible for all costs. However, Auto Enrolment rules dictate that employers must offer to make a minimum level of contribution into a defined contribution pension on your behalf.   

With pensions come tax benefits to help and encourage you to save for retirement – contributions of up to your annual allowance receive tax relief that can be up to 45%, depending on how much Income Tax you pay. 

Individual Savings Accounts (ISAs) could also be a good option for many, as they can provide a tax-free income in contrast to income from pensions, which is taxable. Any interest, income or investment gains made within an ISA are exempt from both Income Tax and Capital Gains Tax, and every year you’ll get a new annual allowance for ISA contributions. 

So, when putting together a retirement plan, it’s important to consider all of your assets, from cash to investments, property and pensions, making sure to keep track of all of your pension plans from the entirety of your working life. It makes sense to look at your retirement goals to work out what income you’ll need for both the short-term and long-term, as well as how you currently spend your income or plan to do so – as this may very well change once you’re retired. 

We’re here to help 

Retirement planning might feel daunting at first, but here at The Private Office, we can help. You can contact us today for a free initial no obligation consultation here, and use our retirement planning calculator too. For those with £100,000 or more in pensions, savings or investments, we’re also offering a free retirement planning review, worth £500. Whereby we’ll prepare a personal retirement forecast and formulate a retirement plan using our cash flow planning service, which we can implement and monitor on a regular basis to ensure that you’re on track for the retirement you want.

Arrange a free consultation

Please note: A pension is a long term investment, the value of investments can fall as well as rise. You may not get back what you invest. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

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