Pension Planning

Pension Planning

Pension planning is a big consideration when you plan your retirement. The aim is to take steps to ensure you have enough income to retire with the lifestyle you want. There are many aspects to pension planning, and you should consider them all, and consider them early. You will be in a better financial position the sooner you take steps, rather than waiting until state pension age (or after).

Decisions you make towards your pension planning now (even the decision not to do anything) will affect your financial future.

HOW MUCH WILL I NEED WHEN I RETIRE?

The most ‘sensible’ approach to pension planning is deciding how much pension income you need, based on what kind of lifestyle you want when you retire. Then, working backwards you take action now so you will have that amount when you retire. Remember to account for inflation in this calculation.

A general rule of thumb for a ‘comfortable’ retirement says you’ll need about half to two thirds of the income you had when you were working. This is just an indication of course. If you work with a TCFP financial adviser, we can help you calculate how much you should have by the time you retire, and work with you to help you achieve it.

HOW LONG WILL IT NEED TO LAST? 

To put it bluntly, it will need to last as long you do. If you retire later you will have more time to contribute to your pension savings and you will have less days in retirement, so it won’t need to last as long as if you retire earlier. 

You can use one of many online life expectancy calculators, but essentially if you are 65 and retire today, a reasonable estimate is that you will live for another 20 years, approximately. Of course, you could live much longer than this and your pension savings will need to provide for these extra years. 

You will receive your State Pension until you die, however you need to look after your pension pot. If you run out of money too soon and have to rely on the State Pension alone, you will likely suffer a large decline in your standard of living.

WHAT CAN I DO NOW?

As the State Pension alone can’t be relied upon to fund a reasonable retirement, the responsibility of being able to retire comfortably rests on your shoulders. The good news it’s never too late to put yourself in a better position. A few things you can do before you retire include:

  • Take advantage of tax relief when contributing to pension (remember there are limits).
  • Consider other sources of income.
    • Each time you get a bonus or pay rise, perhaps add 25% or 50% of this to you pension.
    • Have a second job or rental property? Perhaps allocate a percentage to go to your pension.
  • Shop around and combine pensions.
    • Combining pensions means you aren’t paying duplicate fees.
    • Remember to consider the ramifications of giving up your current pension plan: exit fees, giving up desirable features etc.
  • Plan for inflation.
  • Consider adding a lump sum contribution from existing savings.
    • Keep in mind tax relief limits.
  • Make regular contributions (see next section).

Most of the above should be considered in conjunction with your wider financial situation. You can speak with TCFP for financial advice to ensure you are making the best decisions considering all your financial circumstances.

REGULAR CONTRIBUTIONS

If you haven’t been adding to your pension, one rough rule of thumb is to take your current age, half it, then this is the percentage of your salary you should add to your pension until you retire. For example, if you are 35, 17.5% of your salary (35 / 2 = 17.5) should be going into your pension this year, next year, and every year until you retire.

This is a very rough rule, but it is a good way to emphasise just how much you should be putting away, and the longer you leave it the more you need to make up (thanks to compounding).

Again, this is a good guide, but it is a good idea to seek professional advice to see exactly how your salary and retirement expectations live up to this. You may need to put away more or less, depending on your circumstances.

 

TAKING YOUR PENSION

The last step to Pension Planning is once you’re retired, how should you take your pension? You can read how our article about Pension Freedom to see what options are available to you here.

GETTING HELP

We at TCFP use sophisticated financial planning software which allows us to factor in many aspects including:

  • All pension schemes (employer pay, guaranteed income, final salary, personal pensions) and their possible interest rate returns 
  • State Pension payments 
  • Estimated life expectancy
  • Big upcoming purchases (e.g. holidays, anniversary, child/grandchild house deposit)
  • Possibility of long term care
  • Expenses 

We can then give you a projection of how long your pension pot last and advise how much income you should pay yourself. We have regular reviews to update your plan and ensure you are on track and prepared for anything, to keep your retirement as stress-free and enjoyable as possible. 

You can get in touch here to chat to a TCFP financial advisor, and can read our article about Financial Planning Specialists here to see what you can expect from us.

WHAT OUR CLIENTS SAY

“Jeremy concentrates on getting to know you, your expectations, needs and targets. He focuses on your income, lifestyle, expenditure and assets. Once he has gathered all the relevant information and considered our risk profile he provides a very clear plan. Jeremy then explains and demonstrates during reviews on how he expects your portfolio to perform.” – Essex client (Testimonial from Vouchedfor).

You can find many more client testimonials here.

Great financial planning can change your life.

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