Whether it is deciding at what age to finish work or how much you need to save into a pension, we all ask what are the magic retirement numbers?
Since UK pension reforms in 2015, most people know that they can access the funds from defined contributions pension schemes when they reach the age of 55.
What nobody knows is how much money they will need. Many things can change from year to year and predicting how long we will live or whether we will need paid care in old age is a guessing game.
Such things will all alter the amount of income you will need in later life. That in turn affects how much you might need to keep invested.
Different circumstances require different solutions
Sitting down with an adviser will help answer many potential questions. This part of the process is vital if you are to fully understand what you need from your pension.
For example, someone who is mortgage free at 55 will be in a vastly different position to someone who has five or maybe ten years of payments remaining as they hit retirement age. In fact, they might choose to continue working if they have substantial home loan commitments.
The same is true for anyone who still has children at home. That will significantly change the household’s monthly outgoings. Teenagers can be expensive, as can young adults that have just started college or university.
Additional factors include holidays, cars, and other major purchases. Will you want to spend and enjoy more of this during retirement?
Personal circumstances affect income
Whether you are single, married or living with a partner will have implications for retirement income.
A WHICH? survey of retirees found that those enjoying a comfortable “single” lifestyle spend around £20,000 per year. For a couple, it was about £27,000.
This increased to £33,000 and £42,000 respectively if the lifestyle was considered luxurious, involving regular long-haul holidays and renewing household vehicles every few years.
Until you look closely at monthly and annual expenditure, it is difficult to appreciate what level of income you need when you finish work.
Without putting thorough cashflow forecasts in place many people generalise and think they will need the same income they earned when working. It could be much less.
The Covid-19 virus has panicked people
The coronavirus has caused panic across the world and many investors have been worried about how the impact on markets will affect their pensions.
Anyone approaching or already at that age might have been tempted to draw some of their pension cash recently, especially if the coronavirus has adversely affected their income.
The thinking is often to “cut losses” before things get any worse. However, reducing funds now could limit how the overall pension pot can grow in the future.
Also, it is impossible to predict whether stocks and shares will fall further or make quick gains. Unless you need to access funds urgently the advice would nearly always be to take the long-term view.
What pension questions should you ask?
The first question is how much have you already got in your pension pot? It is a good starting point.
Then, the Logic Wealth Planning approach would be to encourage you to outline immediate, medium, and longer-term life plans.
There is no easy answer. That is why it is important to carefully talk through your options with an experienced and qualified IFA (independent financial adviser).
There is no definitive age or date when you should make pension decisions. However, being in control of your financial position and knowing where you want to be is something you should plan as soon as you can.
When to retire and whether to take a tax-free sum and then draw down regular income are decisions that you can build into your overall plan with your adviser.
To reach this point, where you are comfortable with the investments you have in place, means starting as early as possible.
We wish there were a series of magic retirement numbers that everyone could aim for. Sadly, that is not realistic.
Ideally, take independent financial advice to help you find the right mix for you.
Do that and you increase the chances of enjoying peace of mind during retirement, and at a time in your life that is right for you.
Please be aware the value of investments or income from them can fall as well as rise. We are here to help you make informed decisions.
Call us on 0808 1234 321 or email@example.com to arrange a no-obligation chat.
* Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.