Wherever you are in your career, it’s never too soon to start planning for your retirement.
If you meet the government’s eligibility criteria, you’ll receive at least some State Pension when you reach your State Pension Age. Meanwhile, if you’ve been employed, you may have one or more workplace pensions, or you might have contributed to another personal or private pension.
But will these pensions give you enough money to retire when you want to and have the retirement you dream of? If not, do you have sufficient savings, investments, or income to cover the shortfall?
According to research published by Actuarial Post, almost half of UK adults aren’t confident they’ll have enough saved for a comfortable retirement.
Of course, how much is “enough” for retirement will depend on your unique plans, preferences, and circumstances. Read on to find out how to check that you’re financially on track for the retirement you want.
Your dream retirement will be unique to you
The first step towards checking that you’re saving enough to retire is to consider what you want to do with your retirement.
Many people have big dreams and goals for when they give up work and have more free time.
Perhaps you want to travel the world or start a new hobby? Or maybe you can’t wait to indulge in a more extravagant lifestyle as soon as you have the time to enjoy it?
There are many estimates and calculators for working out how much you need to retire. For example, the Pensions and Lifetime Savings Association (PLSA) suggests minimum incomes for three “retirement living standards” – minimum, moderate, and comfortable.
However, the most accurate way to work out how much is enough for you to retire is to consider your personal goals and ambitions. An average estimate could provide some guidance but it’s unlikely to account for your unique plans.
Calculating the income you’ll need
Estimate your costs
When calculating how much income you’ll need for retirement, it might be helpful to consider the following costs:
- Essentials such as housing, food, transport, and clothing
- Healthcare, including later-life care
- “Extras” such as holidays and hobbies
- An emergency fund for unforeseen expenses.
Factor in your life expectancy
Don’t forget to factor in your life expectancy, which could potentially mean having enough in your retirement savings pot to cover more than 20 years after you leave work.
People are living longer than ever before and underestimating your life expectancy could potentially result in you running out of money later in life, or having to live more frugally than you’d like to.
Calculate your required income
However long you expect your retirement to be, there are many different methods for calculating how much income you’ll need.
That said, forecasting how much retirement income you’ll need is often complicated and a standardised formula may not be flexible enough to accommodate your specific circumstances. A financial planner can use their expertise alongside advanced tools to make calculations tailored to your specific needs.
Check if your retirement savings are on track
Once you’ve considered all your potential sources of retirement income, you can review whether you’re on track to achieve the amount you calculated in the previous step.
Potential sources of retirement income might include your:
- State Pension
- Workplace pension (defined benefit or defined contribution)
- Other savings, such as ISAs
- Consultancy or freelance work.
If you’re uncertain about how much income you can expect from these different sources, it’s worth taking the time to track down this missing information.
For example, you can apply online for a State Pension forecast if you’re aged 16 or over and at least 30 days away from your State Pension Age.
Meanwhile, if you’ve lost track of your workplace pensions, you can use the government’s free Pension Tracing Service if your previous employer is unable to provide the necessary contact details.
The benefits of cashflow modelling
There are plenty of calculators and spreadsheets you could use to check if you’re saving enough to retire. Crucially, though, a financial planner can use advanced cashflow modelling software to provide a more accurate picture of your retirement income needs.
By assessing your income, expenditures, and objectives, a financial planner can create and use a cashflow model to help you visualise the retirement life you want, identify key monetary goals, and align these with your current financial plans.
Get in touch
If you’d like support reviewing your retirement savings to check you’re on track for the lifestyle you want, we can help.
Please get in touch either by email at firstname.lastname@example.org or by calling 0117 9303510.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.