You’re almost there. You’ve saved your whole working life and now you can almost taste your retirement. However, while other parts of your life take up more of your time – such as family and work – it’s so very easy to take your foot off the accelerator when it comes to planning for your retirement.
But now is certainly not the time for coasting.
The choices you make from now on could have a massive impact on the size of your pension pot and whether you can achieve the income you desire once you have stopped working.
If you are on track, this is fantastic and a big well done to you! If you’re not, you have still got some time to make the changes needed to fix your situation.
To help, we’ve designed a 5-point checklist to help guide you through the process and make sure you enjoy a happy and comfortable retirement.
1. Set a budget
This may seem like a pretty basic first step, but lots of people just don’t know what income they’re going to need when they retire.
The harsh reality is that if you don’t know how much you’re going to need, it is quite difficult to know if you’re actually on track.
The easiest way to think about the amount of income you will need is to split your spending into 2categories: essential and non-essential.
This is the cash you’ll need to pay for your most basic living needs in your retirement. This could include standard expenses such as food,mortgage repayments, utilities and car insurance.
This is often also called ‘discretionary’ spending and includes all the things that you enjoy. This could include holidays, eating out and doing various hobbies. This kind of spending needs to be factored in too. You really don’t just want to have enough to survive on, you will want to spend your cash on all the things that make you happy too!
It is also important to keep in mind that there will be costs that may increase and drop once you retire. In example, if you currently travel to work, this will be a cost that you shouldn’t need to factor in. However, you may want to consider the cost of long-term healthcare and calculate just how much this might potentially cost you.
2. Your sources of income
Once you have got a good idea of what income you’re going to need, it is now time to start listing where your income is going to come from. There several sources of retirement income, such as:
- Personal pensions
- Workplace pensions
- State Pension
- Property rental income
- Investments (e.g. Stocks & Shares ISAs)
3. Take advantage of employer contributions
If you are employed, you should fully take advantage of your employer’s contributions. This will give a very valuable boost to your retirement pot if you’ve fallen behind.
The auto-enrolment scheme means that your employer must pay in at least 3% of ‘qualifying’ earnings into your workplace pension, providing you also pay in a minimum of 5% too.
4. Realise your projected income
Pensions are usually the main source of a retiree’s income. If you have got multiple pensions across several providers, you will need to speak to each provider and request a statement that includes your projected income, based on the current size of your pension pot.
You may be able to see just how much is in your pot on the annual statement that they send you. Most pension providers have the facility for you to check your balance online or even through an app. This makes it far easier to see how much is in your pension.
If you are at this stage, seeking advice from a financial adviser can be very useful. By providing a few key details, such as your retirement age, current pension values and how much income you want, you can very quickly and easily see whether you are on track or if you should to take extra steps to reach your goals.
It is also a good idea to request a state pension forecast from the DWP. This will indicate how much State Pension you could get, when you are eligible to receive it and how you can increase it.
It is very possible that you will have other income sources, such as property rental income and various other investments. These can all be added to your projected income from your pension to give you an idea of what you will receive in your retirement.
5. Combine all your pensions
Planning for retirement can be particularly difficult when your pensions are scattered across several providers. It can make usually simple tasks – such as looking at the total value of your pension pot or how much you are paying in fees –far more tedious and complicated.
If you are finding it hard to keep on top of all your pensions, a simpler solution could be to combine all of your pensions into a single new online plan. Having your pensions in one place together will make them much easier to manage, as well as assist you in making more informed choices when it comes to saving for your retirement.