3 questions that could help you calculate how much is “enough” to achieve your retirement goals
Planning your retirement can be exciting and inspiring as you indulge in dreaming of all the things you’d like to do once you finish working.
What may be more daunting, though, is calculating how much you might need to save to be able to afford the retirement of your dreams.
Indeed, recent figures published by MoneyAge suggest that a single person might need to save as much as £738,000 to achieve a “comfortable” retirement. There is an important factor that data like this can’t account for, though: what do you want your retirement to look like?
“Comfortable” means different things to different people
Data about how much you may need to save for a comfortable, moderate, or basic retirement can offer a vague guideline, but it’s not usually specific enough to base your retirement plan on. After all, your definition of a “comfortable” retirement lifestyle might be quite different from that of your friends or colleagues.
So, it’s much more effective to calculate how much you will need to save to achieve your personal goals than it is to base your savings targets on broadly applicable data.
Read on to discover three questions to ask yourself that could help you calculate how much you may need to save for retirement and how a financial planner can help you to achieve your savings goal.
1. What are your goals and ambitions for retirement?
The first step to understanding how much you’ll need to retire is to figure out what you want your post-work years to look like.
This might seem like an unusual way round to do things. You may be used to making plans based on what you feel you can afford, but it can be much more effective to start by considering your dreams and goals.
In doing so, you can work backwards to understand how much you will need to save to be able to afford the retirement you’d like to have.
Some of the things you might consider are:
Where would you like to live?
How often would you like to be able to go on holiday?
Would you like to visit anywhere new, or perhaps travel the world?
Are there any hobbies you’d like to spend more time on, or take up?
Would you like to continue working part-time, or set up your own business?
These are just some of the decisions that can affect how much you need to save for retirement. Let your imagination run wild so that you can plan a truly fulfilling and enjoyable retirement.
2. What would your annual income need to be in retirement to cover these costs?
After you’ve mapped out what you’d like your ideal retirement to look like, it’s time to calculate what it might cost to achieve this lifestyle. Remember to account for inflation and any tax that you may need to pay on your retirement income.
It can be helpful to start by calculating the annual income you might need. Using data such as your preferred retirement date and average life expectancy, you can start to build a picture of how much you might need in your pension and other savings to sustain you throughout retirement.
These calculations can produce a rough figure to tell you how much you may need to aim for in your pension and other savings by the time you retire.
3. Are your existing savings on track to achieve the required sum by the time you retire?
Now that you know what you are saving towards and how much you may need overall, you can review your existing savings to see whether you’re on track to meet your goal.
Remember to check your State Pension forecast to see how much this might add to your annual income after you have reached State Pension Age. If you plan to retire before this, though, you will need to be able to cover your expenses with your personal savings and pensions in the interim.
Your financial planner can help you to visualise all of this with a cashflow forecast. They do this by entering data into specialised software about your existing income, assets, liabilities, and expenses, as well as your expected retirement date and anticipated income needs in retirement. They’ll also include assumptions about inflation and investment returns.
With this information, the software can generate a graph visualising your expected net worth and income needs throughout your life. It can show you whether you are on track to be able to afford your preferred lifestyle in retirement or if you could face any shortfalls.
Your planner can help you to interpret this data and create a plan that helps you to fulfil your retirement ambitions.
Get in touch
If you’d like to learn more about how we can help you to achieve your retirement goals with a bespoke financial plan, please get in touch. Our friendly team in Towcester will be happy to help.
Email theteam@fortitudefp.co.uk or call us on 01327 354321.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate cashflow planning.