Retirement is something we should all be able to look forward to and it's never too early to start a financial plan. To maintain the same standard of living, it's important you don't underestimate how much you'll need. And if you plan early and contribute enough, you should be able to enjoy a happy retirement free from financial worries.
Financial plans you might want to consider include:
- Personal pensions
- Savings
- Stocks and shares unit trusts
Annuity rates have been in decline for some time now, making it even more important for you to start saving early.
How much will you need?
The first thing to do is to work out when you want to retire and how much money you'll need to live on.
The basic state pension in 2013-2014 is only £110.15 a week and many of us can expect to spend as much as 30 years in retirement. Most experts recommend that you aim for a retirement income of 60-80% of your salary.
To help you decide exactly what retirement income you’ll need, it’s worth thinking about what predictable costs you’ll need to cover when you retire. For example, what might your monthly household bills be, will you be replacing expensive items such as a car or boiler and how often might you want to go on holiday. Plus it’s always wise to have some money in reserve for emergencies.
Start saving early
Annuity rates have been in decline for some time now, making it even more important for you to start saving early. The younger you are when you start paying into a pension or other investment plan, the more time your pot will have to grow. Then to ensure you stay on track to achieve the lifestyle you want, ask yourself these questions:
- What is the market value of all my investments today (include pensions and savings plans)?
- How much money do I invest or save each month?
- What is the average rate of return I can generate on my investments and savings until I reach retirement?
- What will my investment portfolio be worth at retirement (based on those figures)?
It’s never too late
If you aren't in as strong a position as you hoped, you could increase your pension contributions to your savings or investments.
The value of investments (and any income received from them) can fall as well as rise and you may not get back what you invested. For some investments this can also happen as a result of exchange rate fluctuations as shares and funds may have an exposure to overseas markets. You should aim to invest for at least five years.
Pensions are not normally accessible until retirement benefits are taken.
Our online tool can help you make the calculations.