For many people, the dream retirement is to be mortgage and debt free with an income or savings to support a lifestyle involving regular travel, meals out and cultural activities such as visiting the theatre. They think about a long and hopefully healthy retirement where they never need to worry about money, eventually passing on a large inheritance to their loved ones.
Is such a vision of retirement realistic? Can you really have it all? In this article, our financial planning team here at Vesta Wealth explores how individuals can achieve their best possible retirement.
Set your income goals
It is useful to ask yourself two questions about retirement planning: how much income will you need, and how much do you want? The first addresses your essential living costs – how much you need to pay for housing, food and utility bills. The second covers discretionary spending such as holidays, leisure and a new car. Calculating these two income levels is not easy, especially as inflation will affect the value of money between now and when you retire. Also, costs may look different in 10-20 years, and there may even be new ones which don’t exist today.
A good starting point to determine your retirement income goals, is to examine your present salary. For some, about two-thirds of your salary will be sufficient as an annual income in retirement e.g. a £30,000 salary could mean aiming for a £20,000 retirement income. If you want more income in retirement, then consider how this relates to your present salary and if your household income is likely to change between now and retirement, how much can you save?
Assess your assets
Of course, a high salary does not guarantee that your retirement assets will be sufficient, particularly if you have lots of personal debt and / or a shortfall in your savings. This is why it is so important to plan for retirement as far in advance as you can. The more time you have, the better, as compound interest has longer to grow your retirement savings at a faster and faster pace.
As a starting point we recommend taking a look at your State Pension, since this is likely to form a foundation to your retirement income. In 2021-22, the full new State Pension provides £179.60 per week; i.e. £9,339.20 per year. If you and your partner or spouse both qualify for this amount in when you retire, then this combined £18,678.40 could cover a good part of your spending needs. To achieve this, you need at least 35 years of qualifying National Insurance Contributions; in some cases you may need to consider voluntary NICs to top up incomplete, past years. You can get a forecast of your State Pension here: https://www.gov.uk/check-state-pension
It is also a good idea to clear expensive debts as soon as possible e.g. credit cards. After all, the high interest payments could eat into money that could otherwise be put towards pension savings or overpaying your mortgage. It is also wise to examine your current pension savings i.e. those which you have accumulated via your workplace pension(s) and personal pensions. Here, it can help to discuss this with your Financial Planner as your scheme, fund selection and investment strategy can greatly affect how much these retirement savings could grow – thus impacting your desired future lifestyle. If you have a final salary pension (e.g. from teaching or police work), these tend to be very valuable and should be factored into your retirement plans.
Invitation
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.