Retirement can often seem like a fixed period of time which you plan for as a single entity. However, the reality is quite different.
According to the life expectancy calculator from the Office for National Statistics (ONS), a 60-year-old woman has a 46.9% chance of living to the age of 90, and a 60-year-old man has a 33.8% chance of reaching this age.
Depending on the age at which you stop working, you could potentially spend decades in retirement, and planning for these different retirement phases is a key part of your financial strategy.
How much is “enough” for your retirement differs for everyone. There is no one-size-fits-all retirement model, and it’s important that you write your own story.
Spending needs often change throughout retirement; you may find the early years are more active, with spending slowing down as you get older.
Later life could bring certain health-related expenditure, including potential care costs.
1. Consider what your dream retirement will look like
As part of your planning, it’s a good idea to think about your aspirations for your retirement.
For example, if you’re planning to travel, then you’ll need to factor this into your income requirements. Or you might decide to downsize your property, which could reduce your income needs and free up extra cash in the process.
At Fingerprint, we use a process called cashflow modelling. This can show you how your finances could look across different scenarios, which can help you to understand how much you might need to fund your plans.
Cashflow modelling can create projected outcomes, so you can see how your finances might look if you retire at a certain age, or how finishing work earlier or later could affect your pension income.
This can help you to understand how much income you might need and identify any gaps or potential shortfalls in your current financial plan.
2. Remember to factor in inflation
Goods and services tend to increase in price over time, and this can erode your purchasing power throughout retirement.
This is why your plan needs to go beyond simply generating a fixed income and take inflation into account.
For example, according to the inflation calculator from the Bank of England (BoE), goods and services costing £1,000 in 2016 would cost you £1,432 in 2026. That’s a 43.2% rise, which means your income would need to increase in line with inflation simply to keep up.
Factoring inflation into your retirement planning can help you create a more sustainable long-term plan and prevent you from facing a shortfall in later life.
3. Don’t automatically stop investing
There can often be an assumption that retirement means you need to stop investing. But this absolutely isn’t the case.
You can choose to leave some, or all, of your pension wealth invested, which could create the opportunity for greater long-term growth and help to mitigate the effects of inflation.
4. Consider the cost of care
It isn’t easy to think about what might happen if you need extra care later in life, but factoring this into your retirement planning now could mean you have more options if you do need support.
According to carehome.co.uk, the average cost of residential care in the UK is £67,496 a year, and a nursing home is £79,820 a year. This can differ geographically, but regardless, care costs can be expensive, so they are an important consideration for your later-life retirement planning.
5. Regularly review your retirement plans
Your financial circumstances can change throughout retirement, so it’s important to keep revisiting your plan to ensure it still aligns with your expectations.
For example, you may find that you’re spending more, or less, than you originally planned, or your investments could be performing differently than you anticipated. You may also change your mind about how you’d like to spend your retirement, and your plan will need to adapt accordingly.
Regular reviews with your financial planner can help you to ascertain whether your existing plan will provide enough income and make any adjustments so it aligns with your latest needs.
Get in touch
Retirement planning is highly individual and there can be a lot of factors involved. We can help you create your bespoke retirement plan, or answer any of your other financial planning questions. Please get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) 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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.