Research from Scottish Widows has shown that the top priorities for those planning for retirement, are generating an income (41%), and having flexibility over that money (40%).
Other goals came in much lower, with the ability to pass on benefits, such as an income or lump sum, to a spouse or dependent at 10% and control over investments at just 9%.
However, it is unlikely that the priorities you have for your retirement will be the same as everyone else. So, how can you identify your retirement aims, and further still, achieve them?
Understanding your retirement priorities
We can’t tell you here how to define your aims for retirement, but we can tell you that they should be:
- Personal
Your priorities should reflect the things that are most important to you, not necessarily your family. If you have a desired lifestyle in mind, generating enough income to support that will be high on your list, much like freeing up time to spend with loved ones will be important to some. Don’t be afraid to delve deep and work toward a retirement that truly reflects your aspirations.
- Adaptable
Your retirement priorities are likely to be flexible and can change as you go through life. For example, whilst you may currently be intent on leaving money behind for your children, that vision may expand to include grandchildren and great-grandchildren eventually. It doesn’t matter how many times you re-evaluate your plan, as long as you adjust it accordingly, and remain on track for a successful and financially stable retirement.
- Realistic
If you don’t have a high salary and have not been putting large amounts into your pension fund during your working years, it is unlikely that you will be able to retire on an income which is equal to what you have during working life. But, you probably shouldn’t aim for that as you probably don’t need it.
With financial planning, you can set yourself attainable goals that will make you feel just as accomplished and ensure that you have an enjoyable and affordable retirement.
Planning for a retirement that suits you
Retirement planning can be a lengthy process but, with the help of a financial adviser or planner, you should find that it is rewarding and worth it for that added peace of mind, so you will not have to worry about being able to afford to live during retirement. Retirement planning involves:
- Analysing where you are now and where you aim to be
Your current position includes all forms of savings, investments and pensions which will be used to provide you with an income in retirement.
How much you will need, will depend on the annual income you need to support your desired lifestyle, as well as your estimated life expectancy.
You can find all of this out by using a retirement calculator, like this one.
- Plugging any gaps
If your current savings habits are unlikely to provide you with the income you need in retirement, you have three options:
- Accept that you will need to live a more reserved lifestyle, on a budget
- Continue working, even if it is part-time, or as a consultant, to continue earning and delay full retirement
- Start putting more money into your pension funds to boost the amount you will be able to access later.
- Accessing your pension
Since the introduction of Pension Freedoms in 2015, the options surrounding your retirement income have grown, meaning that you have more control from the age of 55.
Your retirement income is likely to be formed of two or more of:
- State Pension
- Workplace pension(s)
- Personal pension
- Savings
- Income from property and investments
It is up to you to decide how to organise those to meet your retirement needs.
Fixed and variable income
The difference might seem straight-forward and self-explanatory; however, it is worth reiterating that;
- A fixed income, such as those provided by Defined Benefit schemes, and Annuity or the State Pension gives you a guaranteed, often inflation-proofed annual income which will be provided for the rest of your life.
- A variable income, available via Flexi-access Drawdown, is not fixed, nor is it guaranteed, but it does mean that you can withdraw money as and when it is needed. Though using this as your only income will increase the likelihood of spending too much and running out of money in later life.
Both options have advantages and disadvantages, and the level of popularity between the two has changed dramatically since the pension reforms. FCA research shows that a third (30%) of pensions accessed since 2015 have been transferred into drawdown, while just 12% have been taken as an Annuity.
However, both play a key role in meeting your retirement goals.
Typically, your funds remain invested and the value can go down as well as up. Any withdrawals are subject to your individual tax circumstances.
It is important to remember that combining the two options is possible and that you do not have to make an either/or decision when you retire. Rather, it is better to do so. A fixed income acts as the foundation; paying your running costs, such as bills, mortgage and living costs. Meanwhile, a variable income can be used to cover other costs, whether planned or unexpected, which keeps your finances secure and means that you will be able to support yourself throughout retirement.
The role of financial planning
A financial planner will be able to help you to define your goals in a way which turns them into achievable targets. They will then work with you to find methods and routes to get you from your current position, to living your ideal retirement lifestyle, using what you have currently and building on it.
To discuss how financial planning could help you to achieve your retirement dreams, get in touch.
