Retirement Planning – How much is enough?

Retirement Planning – How much is enough?

12th Thu, Nov, 2020

Retirement is one of the most important life events you’ll experience and getting it right takes planning. Current world events have brought retirement planning more sharply into focus in our consciousness so we have produced a short article with information and advice on retirement planning.    

There are certain things we can do and decisions we can make during the course of our lives to ensure that we enjoy a comfortable retirement, both from a personal and financial perspective.  Our personal motivations and requirements for a happy and fulfilled retirement drive us to make significant life choices, such as buying a house, pursuing a particular career, changing jobs, having children or setting up investment and savings accounts.   

A common misconception, particularly among young people, is that retirement planning is just for more elderly people!  Having one eye on what you would like to achieve during retirement or the lifestyle you want to lead should be an important consideration much earlier in your life.       

What is retirement planning? 

Retirement planning is the important task of deciding how you will live once you retire.  It involves consideration of a number of factors, including at what age you hope to retire, how much money you will need to cover living expenses coupled with the things you plan to do once you've retired, and where your money will come from.  Generally speaking, retirement planning is planning your finances for the period of life after you stop working. 

Each person's situation is unique, and therefore, retirement planning isn't one standard plan for every person.  Successful retirement planning is a long process that takes years of following a plan and continuous saving.  

Early in a person's working life, retirement planning is about setting aside enough money for retirement.  During the middle of your career, it might also include setting specific income or asset targets and taking the steps to achieve them.  Once you reach retirement age, you go from accumulating assets to what planners call the distribution phase.  Once you’ve reached your financial goals, managing your retirement is a continuing process that lasts the rest of your life. 

The time it takes and the complexity of building a retirement portfolio to make sure you’re financially secure and personally ready for retirement may seem daunting but the process isn’t as complicated as most people are led to believe.  With some research, the proper guides and tools, a savings and investment plan that works for your personal financial situation and a commitment to save for the long-term, you’ll be well on your way to your retirement goals.  

Why do I need to plan for retirement?  

Retirement planning has evolved rapidly over the last couple of decades.  Fewer people enjoy the guaranteed income that comes with a final salary pension, and you now have to wait for longer to qualify for the state pension.   

What types of pension do I have?  

A defined benefit pension scheme – sometimes called a final salary pension scheme – is one that promises to pay out an income based on how much you earn when you retire. Unlike defined contribution (DC) pensions, the amount you’ll get at retirement is guaranteed, and it will be paid directly to you – you won't have to use your pension pot to decide your next move.  

With a defined contribution pension you build up a pot of money that you can then use to provide an income in retirement.  Unlike defined benefit schemes, which promise a specific income, the income you might get from a defined contribution scheme depends on factors including the amount you pay in, the fund’s investment performance and the choices you make at retirement. 
 
How much state pension will I get? 

The rules on how much state pension you can get are complicated, and they all changed in April 2016.  The state pension rules changed radically on 6 April 2016, for men born on or after 6 April 1951 and women born on or after 6 April 1953.  There is a 'single tier' pension payment for people in this age group with a 'full level'. In 2020/21, the full level of the new state pension is £175.20 a week (£9,110.40 a year).  You may get more or less than this.  Because of the changes to the state pension, you can no longer build up an additional state pension - nor can you 'contract out' of it to get a higher private pension.  And you only qualify for a full state pension once you have 35 years' worth of National Insurance contributions. Previously it was 30 years' worth.  To get any state pension at all, you need 10 years of National Insurance contributions. 
 
In short, having plenty of money in retirement is on your shoulders - so the more prepared you are, the better your retirement will be.  It can be a boring subject for some.  However, the end goal is to make you richer in retirement so that you can achieve the goals and lifestyle that you want, which should provide a major incentive to be proactive.  The good news is that there’s lots of help that you can get to understand what’s best for you.  

Choosing a regulated financial adviser 

If you need help in choosing a pension, or reviewing your retirement options, a regulated financial adviser may be able to help.  Regulated financial advisers are authorised to give you advice and recommend suitable pensions products and investment options.  Below are things to consider if you use a regulated financial adviser: 

  • Think about what advice you’re looking for; is it just advice on your retirement savings or do you want help with all of your financial planning?   

  • Consider the level and experience that the adviser has, particularly in the areas where you think you need help.   

  • Look at the typical clients the adviser looks after in their business.  Do they have needs similar to your requirements?   

  • Think about whether you will be dealing with one adviser or different advisers or, perhaps, a team of people.   

  • Look at the services they offer and think about how they will interact with you.   

  • Look at what products they recommend for you. Do they recommend products from the whole market, or are they products tied to one, or a small number of providers?   

  • Understand what the adviser will charge for their services and that you can afford to pay these charges.   

  • You should always check that the adviser is authorised to provide financial advice.