Five tips for retirement planning

Retirement planning begins as soon as you start paying into a pension. So, if that’s you – great news! You already have a foundation in place. But what are the next steps? How do you plan for something that probably feels hazy and far off?

Whether you are five, ten or even fifteen years from retiring, this blog will help you build on the foundation you have with simple, practical steps. With a thought-out and flexible plan in place, you can look forward with confidence and make the most of your retirement.

1. Think about what retirement may mean for you

Start with the big picture: how do you want to live your life when you retire? And what does retirement even mean to you?

There are no right or wrong answers here. Instead, you are thinking in broad terms about what might appeal to you. Some useful questions to ask yourself include:

• Do you want to stop work for good in the future or do you want to carry on, perhaps at reduced hours or even exploring new opportunities?
• What would you like to do with your extra free time?
• How important will time with family and friends be further down the line?
• What kind of holidays and how many would you like in the future?
• Will volunteering or other kinds of community engagement be on your agenda?

Try not to get too bogged down with finances including what you may or may not be able to afford. This initial stage is about setting the scene.

2. Start painting your retirement picture

Once you have the big picture in mind, it’s time to fill in some of the detail, and the age you would like to retire is a great starting point. A rough estimate is fine. And it doesn’t have to be the age you want to completely stop working.

If you are thinking of gradually cutting down on work hours, roughly when would you like to start doing this? The same applies if you would like to quit the nine-to-five to explore something new (which often means lower pay).

Now you have thought about the big picture and have a rough idea of when you would like to retire, it’s time to look at your finances.

What income might you need in retirement?

Right now, you don’t need a nailed down budget. Instead, you are trying to get a realistic idea of what life in retirement could cost. A useful approach is to consider the following three categories.

The essentials: this includes housing costs (rent or mortgage), bills, food and basic travel

Lifestyle: the cost of holidays, hobbies and social life

One offs: this could include upgrading the car, home improvements and helping the family

The amount you spend on different things will change throughout retirement, and this is one of the factors that can make retirement planning a challenge. So, keep it simple to begin with by focusing on projected costs for the first few years.

Generally, it’s a good idea to factor in inflation, although it is not easy to do this, especially if you are looking ten or more years into the future. We would take all this into account if you asked us to review and improve your retirement plan.

What income might you receive in retirement?

Again, keep it simple at this stage. You don’t need precise figures – rough estimates are fine. Think about income you might receive from:

• any private and workplace pensions
• the State Pension
• any paid work you are planning to do
• other investments including ISAs and possible inheritances

The idea is to match as closely as possible the income you will need from your chosen retirement date with the income you think you will receive.

If the figures are far apart, the sooner you know the better because you can start planning around this. For example: could an extra two years in full-time employment narrow the gap and would that be an option for you?

3. Make sure your pensions are in great shape

The more you can grow your pension pot, the more options you should have when it comes to how and when you retire. Ten-to-fifteen years from your planned retirement date is a good time to start thinking about this seriously. And if retirement is nearer than that? It’s rarely too late to make a difference.

If you have a workplace pension, start there

Any extra money you can contribute to your pension pot will make a difference. And it’s worth starting with your workplace scheme because of employer contributions.

While the rules state your employer must contribute a minimum of 3% of your salary each year, some will match you if you commit to contributing more than your minimum of 5%. This is effectively free money.

It is also worth checking if your employer offers salary sacrifice because it should mean more money in your pot. Salary sacrifice rules are due to change from April 2029, which will reduce the potential benefit.

Finally, check to see if your money is being invested in the pension scheme’s default funds as there may be other options available that are better suited to you.

Consolidation and making the most of any other pensions you have

It is worth checking any other private or old workplace pensions you have. If the fees are high or the investment performance is poor, you will almost certainly have less in retirement than you could have had.

You can tackle this by consolidating all your pensions into a scheme with lower fees and the potential for improved investment performance. While performance can never be guaranteed, you can structure your investments to give them a better chance to grow over the longer term. It’s worth repeating, though, performance can never be guaranteed.

Having all your savings in one place also reduces admin for you and makes it easier to keep track of everything. You need to be careful, though. Some pensions have guaranteed benefits you will lose or penalties you will incur if you transfer out of them.

4. Check any other investments you have

In the last section we talked about the impact of high fees and poor performance on your pension pot. The same applies to any ISAs you have. Look around to make sure you are getting value for money.

You may have other investments such as premium bonds or one or more properties that you rent out. Think about what income these investments could give you when you retire. Are you best off leaving things as they are, or could you invest your money differently to potentially improve your income in retirement.

5. Revisit, review and refresh

By following these steps, a plan should be forming, something you can commit to paper. At this stage it should be really simple:

• This is how I want to live life in retirement
• This is when I want to retire
• This is the income I will need
• These are the things I can do to achieve that income

You need to be flexible, though, especially if you are ten or more years from your planned retirement date. Circumstances and goals can change quickly. So, it’s important to revisit and review your plan at least once a year.

Some people have the time, patience and financial know-how to do this themselves. For others, it can feel overwhelming. This is where a regulated financial adviser can make a big difference.

It’s why we started Pension Sense. We are here to help you feel confident, informed and positive about the future without being overwhelmed, judged or sold to.

Our friendly, highly-trained advisers will work with you to create a retirement plan that is tailored to your unique circumstances. And can make sure your plan remains on track each and every year if that is what you want.