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How to plan your retirement

There is a lot to consider when looking at how to plan your retirement. And, as one of the biggest financial decisions you will ever make, it is important to look at all your options. It can feel like a very daunting prospect, but it doesn’t need to be. Our retirement planning experts are here on hand to give you the basics of where to begin and how to effectively plan your retirement.

It is highly recommended that when it comes to putting together a retirement plan, and as you are edging towards the age of retirement, you consult with a financial advisor. These decisions can shape your income for the rest of your life, so finding out what will work best for you may not be the same for someone else reading this page, for example.

First and foremost, the sooner you think about your retirement and start to prepare, the more fruitful your retirement plan will be. Allowing yourself to consider all your options at retirement as well as beginning to put money aside early will make the difference in the long run and can even affect when you can take retirement and your lifestyle, post working-life.

Luckily, when you begin your working life in the UK, most people will be automatically enrolled into a pension scheme. It is important to keep track of how much money you are putting into your pension every year. During your 20s and 30s, other commitments such as paying off loans, weddings, mortgages, and children are likely to take priority over paying into your pension but aim to add a little bit more into it as you grow closer to the age of retirement.

Here are our top things to consider when beginning to plan your retirement.

How much money will you need at retirement?

When it comes to planning your retirement finances, the starting point is to consider how much money you will need to live off during that time. There are a number of questions that you will need to look at to determine this amount:

What will your outgoings be?

Think about what you are likely to spend money on once you have retired. Some costs may end up going down such as mortgages or debts you might have paid off, but others might increase such as travel, entertainment, and even heating costs as you have more time on your hands. Work out what your dedicated spending is per month or year, to begin with. Other costs to consider could include:

  • Rent/Mortgage
  • Utility bills (gas, electricity, water, broadband, mobile bill)
  • Council tax/Road tax
  • Insurance
  • Travel and motoring
  • Food and drinks
  • Clothing
  • Entertainment
  • Family including education & accommodation for children post-retirement

What lifestyle are you looking for?

Your outgoings will also be dependent on the kind of lifestyle you hope to lead when you hit retirement age. Your state pension will help provide you with a reasonable income, however, if you want to continue living the lifestyle you lead on the budget you had when you were working, you will need to consider topping up this pot as your income will be lower on the whole.

Many people look to travel, take up new hobbies and experience new things during their retirement, especially during their early years which can put people at risk of spending a lot of their savings early on. Always try to look at the bigger, long-term picture and consider things like paying for care when you’re older.

Budgeting will be an essential part of retirement planning and is important to take into consideration both before retiring and during the everyday life of retirement.

How long do you need your money to last?

When are you planning to take your retirement and stop working? On average, people take retirement at around the age of 65 but this can vary depending on the kind of work and an individual’s personal circumstances.

There is no right or wrong age for retirement, the most important thing though is that you have enough money to last as long as you do after retiring and if you need it to support loved ones, for them too.

It is also worth considering factors such as inflation, which is the increase in the cost of living over time. In 20 years, the cost of household items will change, meaning that your pension will not be as valuable as it is at the time of accessing it.

What will be your sources of retirement income?

From working out how much money you need to live on when you retire, the next step for how to plan your retirement is working out how you plan to generate that income. Take time to work out your likely retirement income and if there are other ways of sourcing income for that time. Here are a few common sources of retirement income:

State Pension: Your State Pension is a regular payment from the government, once you reach your State Pension age, which most people receive. It is based on how many qualifying years a person has been paying National Insurance. You can find your state pension age online and you can also request a State Pension statement which will give you an estimate of how much State Pension you could receive.

Trace other pension pots: As previously mentioned, once you start your working life, you will most likely begin to pay into pension pots. If you have worked for different employers you may have pension pots in different places but all of these can contribute to your retirement income. Our advisors can help you with tracing these pensions or you can use an online tool.

ISAs/Other savings: Although a pension is a great way to save for your retirement, you may have other savings in banks or building societies, ISAs, bonds, inheritance, or investments. Locate any savings and consider if these could benefit your retirement income.

Other sources of income: You can access your pension while still working. A lot of retirees choose to continue some form of work after accessing their pension to contribute to their income. This could look like part or even full-time employment or taking up new businesses such as rental properties or small services.

State benefits: As you grow closer to retirement, there are some benefits you may be eligible for which will save you money such as free bus passes, eye tests, and NHS prescriptions. There are other schemes, credits, and benefits in place to support people with low retirement income, so be sure to speak to an advisor if you think you may struggle.

Consider pension options: If you have pension funds in a defined contribution plan, such as a personal pension or an AVC, you have various options on how you can take your benefits. Ordinarily you can access up to 25% of the fund tax free, with the remainder taxable as income. You can use your fund to buy a guaranteed income (known as an annuity) which can be for life or over a set period. Alternatively you can be more flexible with your benefits, taking funds out as required and adapting to changes in circumstances. This can be known as uncrystallised pension fund lump sum or flexible drawdown. It is important to carefully consider the pros and cons of each option before making your decision.

Top tips for how to plan your retirement

Hopefully, that has provided you with a starting point with things to consider and how to plan your retirement. To summarise, here are our top tips:

  • Begin planning early
  • Work out how much you spend during your working life, and how much you think you will spend during retirement
  • If possible, clear up any old debts. With your income going down, limit your fixed expenditures as these are likely to take up the most money.
  • Budget for changes in your everyday life
  • Locate any savings accounts or old pension pots
  • Decide when you want to access your pension
  • Decide when you want to retire
  • Think about where you plan to get your income from
  • Look into life cover and insurance policies to ensure security for your finances and family
  • Get advice and talk through your options with a financial adviser

If you have any further questions or would like to get in touch to discuss how to plan your retirement, our expert financial advisors are here to help, and all initial chats are free of charge!





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0800 018 6020

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