Preparing for retirement: a financial planner’s guide

Planning for retirement can seem like a daunting task, but with a clear strategy and actionable steps, you can build a secure and fulfilling future. Our latest guide covers everything you need to know to prepare for retirement, breaking down the process into manageable chapters. Whether you’re just starting to think about retirement or are fine-tuning your existing plan, this guide will help you navigate the journey by breaking it down into 7 easy steps:

1. Set Your Retirement Goals: When, Where and How Will You Retire?
2. Calculate Your Retirement Needs
3. Clear Your Existing Debts
4. Create A Savings Plan
5. Spread Your Risk Wherever Possible
6. Consider Your Retirement Income Sources
7. How Will You Spend In Retirement?

Our How To Prepare For Retirement video goes into more detail, with Chartered Financial Planner Chris Breward talking about his experiences with our existing clients at Wealth of Advice.

1. Set Your Goals: When, Where, and How Will You Retire?

The first step in any retirement plan is setting clear goals. Begin by considering:

• When: Determine your target retirement age. This will influence your savings plan and investment strategies.
• Where: Think about where you want to live during retirement. Your choice of location can significantly impact your cost of living and lifestyle.
• How: Envision what your retirement will look like. Will you travel, take up new hobbies, or perhaps work part-time? Understanding your desired lifestyle will help you estimate your financial needs.

Take time to write down your goals and discuss them with your family. Having a clear vision will guide the rest of your planning process.

2. Calculate Your Retirement Needs

Once you have your goals, it’s time to crunch the numbers. Calculate how much money you will need to retire comfortably. Consider:

• Living expenses: Estimate your monthly and annual expenses, including housing, utilities, food, transportation, and leisure activities.
• Inflation: Factor in the impact of inflation on your future purchasing power. Those in retirement who didn’t plan ahead will have received a nasty shock with the recent hike in inflation in 2024, so learn from their mistakes!
• Longevity: Plan for a longer retirement to avoid outliving your savings.

There are many online calculators that can help you estimate your retirement needs based on your current savings, expected state pension, and other factors. Alternatively, consider talking to a financial planner who can help put everything into perspective.

3. Clear Your Existing Debts

Debt can be a significant burden during retirement. Prioritise paying off high-interest debts, such as credit card balances and personal loans. Consider these steps:

• Create a debt repayment plan: List all your debts and focus on paying off the highest interest ones first.
• Avoid new debt: Be cautious about taking on new debt as you approach retirement.

Reducing your debt load will free up more of your retirement income for other essential expenses and activities.

For example, many of our clients use lump sums from their pension to pay off their mortgage in retirement, so they have one less expense to worry about.

4. Create A Savings Plan

A robust savings plan is crucial for a secure retirement. Start by assessing your current savings and identify how much more you need to save. Key steps include:

• Maximise pension contributions: Take advantage of retirement accounts like SIPPs or employer pension schemes, especially if your employer makes additional contributions.
• Automate savings: Set up automatic transfers to your retirement accounts to ensure consistent contributions.
• Increase savings rate: Gradually increase your savings rate, especially if you receive raises or bonuses.

Consistent saving, even if you start small, will compound over time and significantly boost your retirement fund.

5. Spread Your Risk Wherever Possible

Diversification is essential to protect your retirement savings from market volatility. Consider:

• Asset allocation: Spread your investments across different asset classes, such as stocks, bonds, and real estate.
• Rebalance: Regularly review and adjust your portfolio to maintain your desired asset allocation.
• Risk tolerance: Align your investments with your risk tolerance and time horizon. As you approach retirement, it can be worth gradually shifting to more conservative investments.

A diversified portfolio reduces the impact of market downturns and increases the potential for steady growth. Getting started with investing can be intimidating, so we’ve put together this helpful guide which explains all of the key terms you need to know before you get started.

6. Consider Your Retirement Income Sources

Retirement income can come from various sources. Evaluate and optimise each one:

• State Pension: You can check how much State Pension you are entitled to by visiting the gov.uk website, and we also have a helpful video which explains how the State Pension works.
• Income Drawdown: This retirement option offers a flexible approach to taking income from your pension, while the remaining fund stays invested in assets of your choosing to combat inflation and hopefully provide growth to the remaining investment.
• Annuity: Using your pension to purchase an annuity can give security by providing a guaranteed income for the rest of your life, but this can be open to inflation risks.
• Investments & Savings: If you have any existing investments or savings accounts outside of your pension such as ISAs, you can use these to provide income throughout your retirement.
• Part-time work: Consider working part-time or freelancing to supplement your income. Retirement can be the perfect opportunity to pursue your passions and start a new business in something you’ve always had an interest in, while still making some additional income.

Diversifying your income sources will provide financial stability and flexibility in retirement. If you’re unsure which option could be best for you, we would always recommend speaking to a financial planner.

7. How Will You Spend In Retirement?

Finally, think about your spending patterns in retirement. This involves:

• Budgeting: Create a realistic budget that aligns with your expected income and expenses.
• Prioritising: Focus on essential expenses first, then allocate funds for discretionary spending like travel and hobbies. Retirement should be an enjoyable experience, so make sure you’ve saved enough to do what you love.
• Adjusting: Be prepared to adjust your budget as your circumstances and priorities change over time.

Regularly reviewing and adjusting your spending plan will help you stay on track and make the most of your retirement years.

By following these steps, you can build a solid foundation for a financially secure and enjoyable retirement. Be sure to watch our video for more in-depth explanations and tips. Planning for retirement may take time and effort, but the peace of mind it brings is well worth it. Happy planning!

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