Planning for Retirement – Part 2

As discussed in the first part of this article, the earlier you start planning for your retirement, the more financially secure you can be during your golden years.

But most people get too caught up in the demands and pleasures of today and almost forget that there is a tomorrow.

If you still haven’t begun, then there is no better time than now to start planning for your retirement.

We discussed the first three decades of your employed life and the options you have at hand to plan for a secure future.

Despite it having a notorious reputation as the ‘selfish years’, you can inculcate good habits in your twenties and thirties which can form the bedrock of your retirement plan in the years to come.

The forties is the time when retirement is only a stone’s throw away and planning becomes a critical necessity.

Then come the Fifties.

In your 50s

Your fifties are unarguably the most important decade when it comes to financial planning.

You can see retirement on the horizon. You may have a date or a year in mind already.

This year should be enough for you to lay out a roadmap and calculate the minimum amount of money you need, to lead the lifestyle that you dream of.

There are tools like online retirement calculators which can provide you with a ballpark figure.

While it may just be a vague picture as online calculators very rarely account for taxes correctly, it should give you an overview of the many components that make up your retirement planning.

Now, it’s time to have an in-depth look at your pension investments. While most financial experts will advise you to take out risky investments like equities and opt for secure ones like cash investments, the fact is that there is no free lunch. Every investment option has its own pros and cons.

Hence, it is ideal to build a portfolio that has a mix of investments. A percentage of your investments should focus on high returns and another half should be safe and tested methods.

Spend as less as possible. The goal should be to maximize your contribution to your pension fund. All other expenses (mandatory and luxury) should be cut down.

If you were one of the early starters and have managed to accumulate a sizeable fund already, then you can consider investing in a Self Invested Personal Pension (SIPP) as it gives you greater control over your investments.

You may also think about buying an Annuity which can make a significant difference to your income in the years to come.

Your goals in this decade should be:

  • Layout a roadmap for your retirement
  • Reassess your pension investments
  • Try and create a portfolio with a mix of investments
  • Spend less and contribute more towards your pension funds
  • Review your finances periodically

The Sixties

The sixties is the home stretch. You are almost at the finishing line.

You may plan to retire in the early or later years of the decade.

You may also be fit enough to work beyond the sixties adding to your pension pot.

With increased life expectancy, your retirement period could last up to three decades. And it is important that your retirement income should last as long as you do.

So, making the right decisions regarding your pension fund which will be the source of your income and cash in the years to come, is crucial.

So, it’s time for reassessment.

These are some of the questions you may want to ask yourself.

  • Are your debts cleared off?
  • Do you still have a mortgage?
  • Are there dependants on your payroll?
  • Have you considered where you wish to live or have major expenses (house repair or buying a car)?

You need to remember that you will be transitioning into a phase where you will have to create a fixed income every month. And it is crucial that you have your debts and expenses in order.

Speak to an Independent Financial Advisor before you make an important decision.

Read our article, ‘How to Select a Financial Advisor’ for more information.

Now, it is time to prepare for retirement as you enter your seventies and beyond. Your planning is the key, to living comfortably through your retirement years. So plan wisely.

You may also look at our Complete Pensions FAQ page for more information.

Planning for Retirement – Part 1

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?

Not quite.

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?

Understanding 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

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.

The 30s

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 40s 

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.