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How to prepare an ideal retirement

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.

What do you imagine when you think of retirement for yourself in the future? Perhaps you see yourself retiring early in your 50s. Maybe you see a kind of “partial retirement” where you keep on working in some fashion (e.g. advising with a family business). Whatever your ideal future, it is important to recognise that it will not simply happen. You need a viable plan.

The two key questions to answer in this respect are: “How much do I need to retire?” and “Am I on course to achieve this?” Below, our financial planning team here at Castlegate across Grantham, Lincoln and the East Midlands addresses these and other questions when it comes to retirement preparation. We hope you find value in this content. If you would like to discuss any of these matters or discuss your own financial plan with us please get in touch to arrange a no-obligation financial consultation, at our expense:

01476 855 585

How much do I need to retire?

The answer to this question is highly individualised. It partly depends on your desired income in retirement. Some people live happily on a much lower income than others depending on where they live and lifestyle factors. It’s important to recognise that your outgoings will likely change in retirement. Your mortgage may be repaid, children may have left home and commuting costs should be lower/gone. A financial planner can help you arrive at more specific figures in your own case. Yet a good starting point is to assume you will need at least two-thirds of your current household income in retirement.

For a single-earner household bringing in £30,000 per year, therefore, this sets an initial target of £20,000 annual retirement income to achieve. Since this income will need to stretch across 30 (or more) years of retirement, moreover, multiplying these two numbers can start to give you an idea of what kind of pension pot you may need. In this case, £600,000.

This might look like a frightening figure for some people. Others may be comforted. Yet it is key to recognise that this is a very basic, illustrative example. A range of factors will affect how much you precisely need. For instance, if you and your spouse both build up a full new state pension by the time you retire, then the required size of your own pension pot(s) will likely be smaller. On the other hand, you will need to consider how inflation may affect your income and the value of your pensions in a 30+ year retirement. Seek financial advice for the more accurate idea of how much you need for retirement in your own case.

Am I on track to achieve this?

Assuming you have a clear figure in mind of what you need to save for retirement – let’s say, for discussion, £500,000. How do you know whether the current preparations you have made (or lack thereof) mean you are on course to meet this target?

A good starting point here is to check your state pension (and for your spouse to check theirs). In 2021-22, the full new state pension grants £179.60 a week – or £9,339.20 per year. To receive this you must have at least 35 years of qualifying National Insurance Contributions (NICs) on your record. 10 such years are needed to receive anything at all. Your state pension is linked to inflation via the “triple lock” system, meaning these figures rise with inflation each year.

If you are not on track to receive the full state pension in retirement, then consider your options with a financial adviser. It may be possible to make up for “gaps” in previous years via voluntary NICs. Or, perhaps you may need to work a bit longer to complete your record.

Another important area to check is your workplace and private pension(s). You may have many of these after several different jobs over your career. Tracking them all down and determining their value will be necessary to help find out how big the gap is between your current pension savings and the figure you need to achieve for retirement. Here, a financial planner can help you work through your pensions and see if there are opportunities to consolidate them, lower fees and improve your investment performance prospects.

Finally, you can also factor your current asset base into your retirement plans. For instance, it could be an option to downsize your home near/in retirement and use the proceeds to boost your pension pot. Equity release could be another option in certain circumstances (e.g. if you want to access equity in your home but continue to live there). You may also have a business that you will be looking to sell near retirement, or possibly collectibles such as an expensive car or artwork. Each of these options come with respective risks and benefits to consider under the advice of an experienced professional. Be careful not to assume they are your main option, as these types of plans often work better as a “fallback option” for retirement planning purposes.

Conclusion & invitation

If you are interested in discussing your own financial plan or pension strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585