New research has revealed that many people are entering retirement without paying close attention to their financial affairs, or seeking help and advice from a professional adviser, or their friends and family.
In fact, according to insight from specialist Just Group, almost half of retirees in the UK didn't check, or seek help, to see if they could afford to retire.
The problem with this “retirement blind spot” is that many people are retiring without a clear financial plan in place. And, since retirement can often last for decades, failing to ensure you have a sustainable income when you're no longer working could make you vulnerable to running out of money in later life.
Whatever your plans for retirement, having a financial plan could help retire with confidence, allowing you to enjoy your freedom throughout later life.
A conversation with a financial planner can help you understand the questions you should be thinking about before you finish work.
Here are four key considerations to address before you retire.
1. Will you stop work immediately or continue to work part-time?
Retirement these days looks very different to how it was for people retiring in the past. There is a lot more choice and flexibility and your decisions about when and how you retire will affect how you might wish to use your pensions, savings and investments to fund your retirement lifestyle.
While the rising cost of living is prompting some people to continue working for longer, there are multiple other reasons that more people are choosing to take a phased approach to retirement.
If you decide to continue working in some capacity, you’ll still be generating an income and may decide to leave your pension invested. This could give your retirement pot more potential to grow. It will likely mean you'll also end up needing less from your pension when you are ready to fully retire.
Read more: Pros and cons of easing your way into a phased retirement
You needn’t set your chosen retirement age in stone right now, but understanding your intentions could help you work out whether you’ve saved enough money for your retirement and whether your current investments are appropriately structured.
2. How much income will you need for the retirement lifestyle you want?
How you plan to spend your retirement will affect how much income you’ll need your pension and investments to generate.
For example, you’ll need more income to fund big plans for world travel than if you intend to stay close to home and enjoy time with your grandchildren.
Once you know how much your desired lifestyle is likely to cost, you’re ready to create a realistic retirement budget.
In the UK, Which? report that a couple wishing to lead a comfortable lifestyle with money for all the essentials, including regular short-haul holidays, recreation and leisure, would need post-tax income of around £28,000 a year. Meanwhile, a couple wanting to enjoy a more luxurious lifestyle would need around £44,000.
It can be difficult to calculate exactly how much money you’ve saved, let alone work out whether it’s enough to meet your retirement goals. We can help you work out how much income you would need based on your own lifestyle goals.
3. How long will your income need to last?
Having “enough” money on the first day of retirement is all well and good but you also need to make sure you plan well in advance to avoid the risk of running out of money later down the line. So, it's important to think about your own life expectancy, and that of your partner or spouse, too.
According to the Office for National Statistics, in the UK, a 50-year-old man today will live to age 84. And there's a 1 in 4 chance he'll reach 93. Meanwhile, a 50-year-old woman will live to age 87, and has a 1 in 4 chance of celebrating their 95th birthday.
These figures are based on UK averages and actual life expectancy will vary depending on location, health, and previous occupation.
Such life expectancy figures provide a useful reminder that it's important to plan for a long life. This way, you can work to ensure you have the funds you need to sustain your income in retirement.
Taking all your sources of income into account, we can help you devise a sustainable income strategy to help ensure you can live the lifestyle you want, as tax-efficiently as possible.
We also use cashflow modelling tools to show how long your money is likely to last and what affect small changes could make.
4. Have you made any plans to meet the cost of later-life care?
As with life expectancy, the cost of later-life care will vary depending on where in the world you live and the kind of care you need.
You may have heard of the retirement spending smile. This is a smile-shaped chart that shows how the start of retirement generally sees retirees spending more as they enjoy an active lifestyle. As they begin to age and start to slow down, spending reduces. But, for some, as discretionary spends decrease, health costs can start to creep up.
Having a good understanding of your spending patterns in retirement, and the potential costs associated with long-term care, could help you to predict how much money you will need throughout retirement.
A financial planner can help you build a financial forecast to work out if you are on track to meet your retirement goals and plan for the cost of later-life care.
Read more: 3 practical steps when planning for later-life care costs
Get in touch
If you’re worried about sleepwalking into retirement or don’t know how much money you need to meet your retirement goals, we can help.
With extensive experience in advising clients about retirement planning, we’re here to support you in your transition from work to retirement.
When you approach us to understand if you’re on track for retirement, we’ll assess your assets and the steps you’re currently taking. We’ll also take the time to understand what your priorities are and what your dream retirement looks like.
It’s never too soon to start planning for a comfortable retirement. If you’d like help to create a financial plan to structure a tax-efficient income in retirement, please get in touch.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate cashflow planning.
