Trying to calculate what you will need financially for your retirement is not always an easy thing to do. There are likely to be a lot of changes before you reach the end of your career: your life itself and associated goals will go through many changes, inflation will alter the value of the pound, governmental regulations will alter what benefits you can access in your post-work years and your private pension (if you have one) may experience a fluctuating performance. So how can you possibly decide how much you will need and whether you are on the right track?
First of all, when in retirement you are going to need a fundamental income just to get by. Judging how inflation will affect prices and real values in the future can be difficult, but your pension provider takes all of this into account when attempting to provide a benchmark figure of what you are likely to receive. It is a broad estimate, but it can give you an idea to work from. Around these figures you can build in a more robust idea of what you want your retirement to look like – not just about needs but desires and aspirations as well.
Your own aspirations are likely to fluctuate throughout your life journey so make sure you pay attention to factors which are not likely to change. Those basic factors that forever give you satisfaction. This could be a desire to be with friends and family (i.e., re-locating to be near grand-children) or you may love travelling and have your eye on something like a world cruise.
With an idea of needs and wants you can determine an outline of those costs and factor them into an idea of finances needed. This of course is still very general, but it helps you keep those very important things front of mind and create a flexible blueprint.
There will be five main places from where money for your retirement comes from:
- Everyday savings accounts
- Investments and assets
- Inheritance and gifts
- Private pension accounts (including occupational pension)
- State Pension
The last two are possibly the two areas which you have most control over. It is your money you will contribute and you can decide how your money is used. Your pension will be the foundation of your retirement resources.
Maximising your private pension and state pension
- Current accounts: Be aware of money which just tends to sit in your accounts and give little or no interest. Can this money be moved to your pension so it is actually creating some kind of return?
- When you are opted into your employers pension it all seems to go on behind the scenes – your contribution is taken away before you receive your salary. Keep an eye on its performance through the annual reviews you will receive. Take an interest in it – it is your future.
- Your State Pension is dependent upon you providing maximum contributions during your working career. If you have had gaps in your working career it will be worth adding contributions via your savings to ensure you receive the full amount when you retire. State Pension is fundamental to your retirement income.
- Monitor the performance of your pension with the support of a regulated pension adviser who can match current financial markets with your future goals.
- Your pension at heart is no more than long-term savings. You can access these savings for short-term needs when you are aged 551. Knowing this can help you plan for the future more easily.
1 Accessing funds early is not always available with all pensions. It is important to remember that taking money early is not right for everyone and it could leave you worse off in retirement. So always consider gaining the support of a regulated financial adviser.