What do you want your life to be like when you pass retirement age? Are you looking forward to the end of your working life as a time to take on new projects or to simply relax after 40 plus years of work?
The kind of retirement you have will be determined by the decisions you make today about how you organise your money. This is the central idea driving retirement planning: how are you going to ensure that you get the retirement you want?
The answer does not simply involve relying on your employer or the government to provide for you in your old age. Rather, it involves bridging any gaps between what you want, what you have and what you are going to need.
Do you have enough to retire?
Retirement planning begins with an awareness of 2 basic parts of the equation. The retirement age is based on when you were born and signifies when a person is able to retire. Through the scrapping of the default retirement age, you can now legally work past your retirement age.
So, the question is whether you want to bow out of employment as soon as you are able or you think you will continue working in some capacity (perhaps with reduced hours)? In other words, are you going to need a retirement income to be fully in place or will you still have a regular salary coming in?
The current state pension is £115.95 a week, with a new state pension of a maximum of £155.65 a week being introduced from 6 April 2016. The new pension rate will apply to those men born on or after 6 April 1951 and women born on or after 6 April 1953. The new state pension will be based on your national insurance record, and an individual will need 10 qualifying years to be eligible.
What do you need?
You now have a timescale and a base income as a starting point for the rest of your plans. Auto-enrolment means you are also likely to have a work pension scheme to make use of. Is this going to be enough to give you the life you want? For many, trying to live solely off of the state pension and a work pension will represent a fall in monthly income compared to working.
Another factor is any debts such as a mortgage and other obligations like energy bills that may eat further into your regular income. Any savings and investments you have will be an important counter-balance.
You may now see a gap opening up between what you want and what you currently have. Retirement planning is about closing the gap between expectation and reality.
Call us to help you get an idea of your financial situation.