The closer you are to retirement, the more important your retirement planning becomes.
The last five years of work may be some of the most critical of all. If your plans are in place and your pension pot has grown to a level that can provide the income you need in your retirement, you may be able to relax and look forward to a life of ease.
However, you will need to review your pension regularly to make sure that the pot is maintaining its level to maintain your retirement income. The value of a fund is not guaranteed it may go down as well as up in line with investment performance.
But are you confident that you have made all the provisions you need for the kind of retirement you want?
If they are not, you have five years to hopefully get them back on track – or you might find that you will be working a lot longer than another five years before you can afford to retire.
It is time to do some sums.
How Much Will You Need?
The first step in your five-year planning is to work out how much you will need in retirement.
A single pensioner needs an annual retirement income of at least £12,800 to fund a minimum lifestyle, according to the Pensions and Lifetime Savings Association.
But you will probably want to cover more than your basic needs. You will want enough cash to run a car, perhaps, to enjoy holidays and evenings out. You might want to maintain your current lifestyle rather than try to enjoy a life of self-denial.
Your outgoings maybe reduced. You will not need to commute, and you will not need to save for a pension once you retire, but other costs will be much the same – and likely to increase in the years to come.
75% of your current income might be something to aim for, but you need to be certain that you can cover all the costs you will still be faced with.
The big problem is inflation. It might not be running at 10% in five years’ time – but there is no guarantee that it will not. Already many pensioners with fixed incomes are seeing their pension pot running out much faster than they anticipated. If you are not going to be joining them you need to add a hefty margin to your projected monthly spending forecast.
Look at your monthly expenses now – and look what they might be in five, ten- and twenty-years’ time.
How far into the future should you be looking? You can make an estimate based on your general level of health and family history. For example, if your family typically live into their 90s and you are in good health, then you may want to assume that you’ll still be around at that age. But remember – you may not be able to live as independently as you do now – you might need to budget for the costs of care.
How much will you get?
The full state pension is around £10,600 a year. By itself it’s not enough for a comfortable retirement although it does make a big contribution towards it. But it needs to work alongside your employers or your private pension. If you qualify for the full government amount – £203.85 a week at present, or £10,600 a year – you need to find at least an extra £2,200 a year from your personal savings to fund even the most basic retirement.
You will probably want a sum comparable to your current income. To understand whether it is realistic you need to look at your employers and personal pension plans, and your savings and investments, to see exactly what your income will be.
Request an illustration from your pension provider, or providers. This should show you your projected income. You might want some help from a Continuum expert to see how your investments could help – or how your pensions could be made to work harder.
Are you on track?
If your calculations show that you are not financially prepared to retire in five years, here are some things to consider:
- Could you make changes to your planned retirement lifestyle that would reduce your expenses?
- Could you increase your retirement account contributions enough over the next five years so that they’ll produce sufficient income once you retire?
- Are there other sources of income that you could call on?
The best way to find the answers is to get expert help from the Continuum team. We can help you look at your five-year retirement plan, and help you make your money work harder so you can enjoy the retirement you deserve.
Call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
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. Pension income could also be affected by interest rates and currency fluctuations at the time benefits are taken.