Visualise it, and make it happen
Build it, develop it, revisit it in future – it’s easier than you think.
1 l So what does your dream retirement look like?
Don’t worry if this is new to you and seems daunting. Think of it as ‘retiring with a purpose’.
And remember, retiring doesn’t have to be ‘all at once’. You could ease into retirement by reducing your working hours to begin with.
So what does your dream retirement look like?
Lots of holidays?
More time for family and friends?
Making and growing things?
Starting a new business?
Volunteering for charity?
Reading a book - or writing one!
For most people it’s probably a mix of these things
Take action.
Research suggests the more clearly you visualise yourself doing something, the more likely you are to take action and make it happen.
Try to imagine your retirement clearly. Imagine yourself getting up in the morning: where are you? What do you do? Where do you go? Who do you meet and why?
2 | When do you want it to start?
You’re free to pick your own retirement age. Once you’re over 55 you can usually start turning your retirement savings into benefits whenever you’re ready. Note: the minimum age you can take your DC pension will increase to 57 from 2028 for most people.
But – you don’t have to retire all at once. In fact, you don’t have to retire at all. You could carry on working full time, shift to working part time, or work for yourself, while starting to take some of your retirement savings.
Of course, you have to think about when you can afford to start taking your benefits. It’s good news that we’re living longer, but it does mean you could have 20 or 30 years – or more – to fund from your retirement savings.
Don’t forget to update your target retirement age with your pension provider(s).
Most pensions have a default investment option (the one you go into if you don’t make another choice) which switch your savings into lower-risk investments as you get closer to your target retirement age.
If they change too early, you could miss out on growth. If they change too late, you risk falls in value.
So, if you change the age you want to start taking benefits from, remember to ask your pension provider to change your target retirement age (you may be able to do this online, depending on what your provider offers).
Target retirement ages are often set to 60 or 65 if they’ve never been changed, so it’s important to check.
3 | How much income will you need?
To understand whether your retirement savings are on track, you need an idea of how much income you’ll want to live on.
Everyone’s different, and it’s important to have an income target that’s right for you. What could your costs be?
- Some costs – such as commuting and clothes for work – may go down.
- Other costs, such as heating and lighting, may go up.
- Will you have paid off your mortgage? If you’re renting, of course, this continues in retirement
- Might you be helping to look after family members such as grandchildren or elderly parents?
- Are you planning to travel, or take up a hobby or sport that could potentially be expensive?
Target a lifestyle
To give you an idea of what level of retirement income you should be aiming for, the Pension and Lifetime Savings Association (PLSA) has come up with Retirement Living Standards – and suggested three levels of income for different lifestyles.
These don’t include housing costs (mortgage or rent) and are for people living outside London, so make sure you factor these points in.
Below is an overview and you can find out more by visiting the Retirement Living Standards website.
£13,400 a year (single)
£21,600 a year (couple)
For example, for a single person –
£55 a week for groceries
£450 a year for clothes and shoes
No car
A week long holiday in the UK every year
£31,700 a year (single)
£43,900 a year (couple)
For example, for a single person –
£56 a week for groceries
£1,548 a year for clothes and shoes
3-year old car replaced every 7 years
2 weeks in Europe every year and a long weekend in the UK
£43,900 a year (single)
£60,600 a year (couple)
For example, for a single person –
£75 a week for groceries
£1,548 a year for clothes and shoes
3-year old car replaced every 5 years
2 weeks in Europe every year and 3 long weekends in the UK
Where do you see yourself?
Visit our Retirement Living Standards page for more details.
4 | What savings have you already got?
Now you’ve worked out roughly how much income you need, it’s time to look at your retirement and other savings to see how close you are to your target.
Tally up your savings
You can use the MoneyHelper’s online pension calculator to help you work out your total income from your pension pots and other savings. It also forecasts your likely retirement income, allowing you to see if you’re on track or if there’s a gap between your expectations and forecast.
Here are the three main areas to take into account
You’re probably building up benefits in a workplace pension with your employer, but you may have other workplace pensions from previous jobs.
The government’s Pension Tracing Service can help you find any old pensions you don’t have records for.
You build up State Pension from your National Insurance contributions. To find out how much you could get, ask for a State Pension forecast. This will give you an estimate of how much your State Pension could be at your State Pension age.
And remember to check your State Pension age – it could be later than the age you’re planning to retire at.
If you have a personal or stakeholder pension – even if you haven’t paid into it for a while – remember to include it in your calculations.
Remember to count any other savings and investments you have, such as bank and building society accounts and ISAs.
If you’re married or live with a partner, will you share their retirement income and will they share yours? Do you need to set an income target as a couple, or have a target each?
5 | Is there a gap?
So, you’ve added up your retirement and other savings. Do you think you’ve got enough to give you the retirement you want, or is there a gap?
No gap: You’re reasonably on track with your savings at the moment. That’s great, but remember to check and update your budget planner from time to time so that you stay on target for the retirement you want. Estimating your spending and future income isn’t a ‘one-off’ event and remember investment performance can’t be guaranteed. Times change and so may your needs.
Yes, I’ve got a gap: Don’t worry! It’s not too late to get on track for the retirement you want. Let’s have a look at your options for closing that gap.
The longer you spend building up your retirement savings, the more you’re likely to have to retire on. You could also get the benefit of ‘compounding’. What’s compounding? When you save money, as well as earning interest or investment returns on your savings you also earn interest or investment returns on the interest or returns themselves – so your savings grow over time and the rate they grow at gets faster (though growth can never be guaranteed and you could also get back less than you invested).
In the past you may have assumed you’d retire at 58 or 60. But as you get closer to those ages, you may decide this isn’t realistic. To have the kind of retirement you’re dreaming of, you need to carry on saving for now. For example, you may decide to put off retiring until you can claim your State Pension. Check your State Pension age.
If you decide to retire later, remember to ask your pension provider to change your target retirement age. It’s important to keep it up to date, as it may affect how your retirement savings are invested and your opportunity for growth
Maybe you decide to retire anyway and accept you’ll have less to live on. The PLSA Retirement Living Standards suggest a minimum retirement income of around £14,500 a year for a single person. So you may for example, decide you can achieve this now by taking more money from your pension pots to start with and then get a boost when you reach State Pension age and claim your State Pension.
Or, to help keep your retirement plans on track, you may decide to save more.
These online budget planners can help you see what you spend money on, and where you might be able to free up money to add to your retirement savings.
And here’s a collection of our top saving tips.
NEXT UP:
How much do you need 