For most Britons in their twenties or thirties now, retirement seems like a distant proposition that can wait.
Oh, there’s still time to think about what one would do in their sixties. Isn’t there?
Ineffective retirement planning or the complete lack of it can leave you in the doldrums without enough income to sustain your current lifestyle.
It is estimated that more than half of the people in the UK are not saving enough or not saving at all, in order to live the kind of life they expect in the golden years.
This brings us to the most important question.
How much income do you need to maintain or upgrade your current lifestyle during retirement?
Before calculating one’s income, it is important to understand, that retirement may not necessarily be three decades away anymore.
Many people wish to retire earlier while they still have good health, to enjoy travel and other leisure activities.
Others may wish to continue working beyond state pension age.
The first option leaves you with a risk of having a smaller state pension pot when you retire.
The second allows you the luxury of delaying drawing your state pension which means, you retire with a bigger amount.
While travel and leisure seem like an attractive part of retirement life, it is only prominent in the initial years. One needs to account and plan for healthcare costs, during the later stages of life.
All this information may seem overwhelming but it is not that difficult to ensure that you are not left cash-strapped during your golden years.
Here’s an easy-to-understand decade-by-decade guide on how to plan for your retirement income.
The 20s are a period of turmoil in a young person’s life and there are quite a few bumps to manoeuvre. So, at this stage, your main goal should be to pay off debts if any and begin saving, no matter how paltry the sum may seem.
- Goal 1 – Clear Debts
- Goal 2 – Start Saving
- Goal 3 (Optional) – Start an ISA
Having said that, this age is also perfect to start your retirement plan and one of the best ways to do it is to start a tax-free ISA. You have flexible access to the money if and when, you do need it. You are building a financial resource for the future and yes, it also allows you to make ‘savings’, a habit.
With the 30s come new responsibilities and new challenges. You may plan to get married, buy a house or start a family. Financially, you need to play your cards right in this decade. So sit down with a pen and a piece of paper and reassess your finances.
- Do you have expensive unsecured loans like credit cards?
- Do you have other debts like student loans?
- Are you planning to buy a house soon?
- Are you saving for a contingency fund?
Once you have a clear picture of your financial outgoings, you should execute a plan towards reducing it. Work on clearing off debts first. Once you are debt free, it is time to start exploring your retirement options.
Your company may have a pension scheme that you can enrol in. Explore your options when it comes to pension schemes. The default one may not be your only choice. You can take more risks at this stage. Consider investing in shares.
The 40’s are usually a great time financially. You have pay raises, bonuses, your debts are cleared off and you can now start thinking about dedicating a significant amount towards your retirement income.
Yes, this is a critical period for your retirement savings. What was an option to be considered two decades ago, now becomes a crucial necessity.
Ideally, you should have some sort of retirement savings by now. But if for some reason you do not, then you are not alone. Many people start in their forties and still end up with a sizeable retirement pot. Only, it may take more effort. As Albert Einstein once famously quoted, ‘Compound Interest is the eighth wonder of the world’. Start early and you will need to save less.
Your goals during this decade should be to:
- Dedicate more money towards retirement savings
- Add to your ISA
- Start saving if you still haven’t started
Do read the second part of this article to get information on retirement planning in your fifties and sixties, the years that will lead up to your retirement.