How could you reach a financial position from which you could retire comfortably?
Retirement is an exciting prospect. No more work. Plenty of time for your hobbies. No ties to a job, so you can go where you want, when you want. But to get there, you’ll likely need a plan.
These days, fewer people have the luxury of the guaranteed income of a final salary pension, and we’re all having to wait longer for our state pensions. So, if you want to have enough money in retirement, it’s a good idea to plan ahead. The more you prepare, the more likely you could have the retirement lifestyle you want.
The first thing you should consider is your definition of a comfortable retirement. Everyone will have a different view on this, so setting out your goals from the start could help you plan for your ideal future.
Financial planning is not the most exciting thing in the world, but if you want a fun, secure and comfortable retirement, it may be vital.
It’s important to remember that retirement planning evolves over time and begins with identifying your retirement goals, and the length of time you may need to save to achieve them.
As we mentioned earlier, the definition and expectations of a comfortable retirement will differ from person to person. However, it can be helpful to spend some time doing the maths on how much you have saved for retirement, as well as what your retirement income and expenses may be.
On the income side, you may want to check how much is in your pension pot and understand how much you could get from your State Pension. You can check your State Pension online to get a forecast to find out how much you could get and when. It could also be a good idea to check what other income you’ll have in retirement and how it might change.
As far as expenses go, you may want to add up all the living costs you have now and make sure that your retirement income will provide you with enough money to live off.
It may also be worth considering how your living costs may change in retirement and build those adjustments into your budget calculations.
Right now, you could be in a demanding job, have a young family to care for, or little time for those hobbies you love. Thinking about your pension may seem dull, but it is important. It might feel like a long way off – it may even seem like a lifetime away – but before you know it, it will be knocking on the door.
One of the best ways to approach retirement is to start thinking about making contributions to your pension pot early. Of course, the ideal life and the real life rarely see eye-to-eye. Life is full of obstacles that get in the way of planning, such as paying off student loans, buying a home, and starting a family.
But, getting a head start in your 20s and 30s means your investments have plenty of time to mature. As you get older, you may be able to take advantage of earning a higher salary to give your savings a boost. You may reach an age where your mortgage is paid off along with other debts, giving you even more disposable income to put aside.
Now you can see why planning early might be a good idea.
Retirement income doesn’t just have to come from pensions. You could top it up with any ISAs that you have, interest from savings, or income from rental properties, should you have any.
ISAs can be a tax-efficient way of saving for the future. Through them, you can invest in cash savings accounts, investment funds, or a combination of both.
One of the most challenging aspects of creating a comprehensive retirement plan is striking a balance between realistic return expectations and a desired standard of living. An optimal solution could be to create a flexible portfolio that can be updated regularly to reflect changing market conditions and retirement objectives. And start early!
If you need more guidance, a financial advisor can give you an idea of what your retirement income will be, based on how much you’re saving.