Audit your retirement plan with these 3 steps

Pension shortfalls are a growing issue for those approaching retirement in the UK.

Money Marketing reports that only around 30% of those saving into a defined contribution (DC) pension believe they have enough wealth to retire comfortably. Fewer than a third believe their pension savings will last throughout retirement.

Peace of mind is just as important as accumulating wealth for later life. Yet, even with stable income and a watertight plan, doubt can creep in.

In reality, you are probably more secure than you think.

To help you restore your retirement confidence, follow our three-step retirement self-audit.

Step 1: Define your retirement goals

Your retirement goals give your plan purpose and direction. Without a clearly defined end point to save for, you might feel rudderless.

Your objectives are unique to you. Therefore, it’s important that you take the time to carefully consider how you want to use your wealth to achieve your vision of the future.

Ask yourself:

• What age do you want to retire?
• What is your dream retirement lifestyle?
• How will you find fulfilment?
• Are there any new skills you wish to learn?
• What legacy do you want to leave behind?

It’s equally important to define these goals when you first build your financial plan as it is 20 years later. Over time, your circumstances will change, as might your expectations for the future. As such, your goals are fluid, not fixed.

For example, you may have initially been aiming to retire at age 60. However, you might later decide to move up your retirement timeline and finish working at 55. Conversely, if you enjoy working, you may want to delay or stagger your retirement so that you can continue building wealth.

Step 2: Calculate how much income you’ll need in retirement

Once your goals have been established, they provide a framework you can use to calculate how much income you’ll need in retirement.

There are three ways you can predict your average retirement income.

1. Use the Retirement Living Standards

The Retirement Living Standards set out three different standards of living and how much each lifestyle is expected to cost.

For example, a “comfortable” lifestyle requires £45,400 a year for a single person, or £62,700 a year for a couple. This includes a two-week holiday in the Mediterranean and a £1,500 annual clothing allowance.

The Retirement Living Standards can be useful as a benchmark. However, it’s unlikely that they will exactly match your own expectations for the future.

2. Base your income on your current spending

If you are planning on continuing your current lifestyle in retirement, you can draw up expectations from what you currently spend.

This can be as simple as reviewing your bank statements and calculating how much you spend in a normal month. Alternatively, you could combine your outgoings from across the entire year for more accuracy.

3. Calculate your income from scratch using your lifestyle expectations

Your retirement lifestyle might be completely different from your working life.

In which case, you could build your income expectations entirely from scratch. This would involve designing your ideal retirement lifestyle and calculating how much it’s likely to cost.

Factor in:

• Weekly shops
• An eating out budget
• Trips abroad (particularly if you are planning on travelling frequently)
• Hobbies
• Whether you’ll move home
• Social coffee mornings
• Volunteering and charity work

If you’re struggling to visualise your ideal retirement lifestyle, a financial adviser can help you plan with confidence and ensure that no gaps are left behind.

Step 3: Check whether your plan is on course to meet your retirement savings goal

You can use your retirement income expectations to calculate how large your retirement fund will need to be.

For instance, if your lifestyle requires an annual income of £80,000, your combined pots would need to be at least £1.6 million for a retirement lasting 20 years.

Next, you’ll need to determine whether your current savings and investment strategy is on target to meet this goal.

Gather all relevant data about your assets, including:

• Pensions
• Investments
• Savings
• State Pension entitlement

Calculate how much you have accrued already. Then, determine how long it will take for you to meet your savings goal based on your current contributions to savings and investments.

These calculations can get complicated, especially when you factor in complex variables like:

• Investment growth
• Inflation
• Increased tax liability
• Healthcare costs

We use cashflow modelling to provide data-driven predictions, modelled under various economic conditions. This gives you a clear picture of what you need to do to meet your retirement savings goals.

As a result, you may feel more confident about your finances.

The final step: Schedule a retirement review with your Caliber financial adviser

Retirement is a huge transition, and it’s normal to feel uncertain about whether you are saving enough or how an unexpected event might impact your finances.

Sometimes, a review is all you need to find your confidence.

Together, we can run through your plan, check your goals, and identify whether there is any cause for concern.

Email contact@caliberfm.co.uk or call 01525 375286 to set up a meeting with your financial adviser today.

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.

The Financial Conduct Authority does not regulate cashflow planning.

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.

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.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

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.