There’s a good chance you’ve already spent time imagining the next stage of your life. Yet, it’s easy to underestimate just how much you might need to support your chosen lifestyle.

This is more common than you may think. Professional Paraplanner reveals that while the average person might need to save around £500,000 to achieve a moderate standard of living in retirement, more than 60% of those surveyed said they didn’t feel confident about reaching this target [1].
 
To avoid facing a shortfall, here are four practical steps you could take now to ensure you’re financially ready to retire.
 
1. Know what your retirement looks like

Before looking at the numbers, it helps to have a clear picture of your ideal retirement lifestyle.
 
You might want to travel the world, explore new hobbies, or spend more time with your loved ones.
 
Whatever you wish to do, a helpful first step in determining your retirement income needs is drawing up a list of your dreams and ambitions.

You could start by listing your plans to help you estimate whether your retirement will likely be more or less costly than your current lifestyle.
 
If you’re anticipating significant expenses, such as a dream trip around the world, you may benefit from creating a timeline, allowing you to plan for more significant one-off costs.
 
Make sure to account for modest and regular expenses, too, as these everyday costs can quickly add up. And, since you’ll likely spend more time at home, your electricity and heating bills could rise, so it’s worth factoring in these changes.

2. Learn how your income needs may change

Once you’ve clarified your goals, you may be better equipped to determine the income you need.

It’s vital to remember that spending in retirement often follows a “bell curve”, with your income needs:

• Starting higher in the early years as you enjoy travel or new experiences
• Falling as you tick items off your bucket list and start to slow down
• Rising again later if your health deteriorates and you require care.

If you don’t plan around this, you might prematurely exhaust your retirement funds, leaving you with a significant shortfall later in life and unable to maintain your standard of living.

As such, you may want to set aside a specific pot of money dedicated to covering later-life costs, or earmark a portion of your pension for potential care.

3. Work out how much you already have and where you’re holding it

While your pension will likely form the foundation of your retirement income, you may also want to consider your other sources of wealth.
For instance, you might have:

• Income from property
• Cash savings in a bank or building society account
• Savings or investments in Individual Savings Accounts (ISAs).

These can all serve different purposes. Indeed, you may wish to keep cash savings aside for any short-term needs or emergencies while leaving investments in ISAs to grow over time. 

Alternatively, as wealth you draw from ISAs is free from Income Tax, you may want to strategically draw some of your income from these tax-efficient accounts to bolster your income while mitigating your tax liability.

Remember, from April 2027, pensions could form part of your estate for Inheritance Tax (IHT) purposes. This could affect how you draw an income in retirement and structure your withdrawals, especially if you wish to pass wealth on to your loved ones.

4. Speak to a financial planner

A financial planner could play a significant role in bringing everything together.

By using cashflow modelling software, they can create a projection of your finances throughout retirement, considering your savings, goals, and any projected lifestyle changes. This can account for inflation and investment performance, too.

This may help you understand whether you’re on track. If you’re facing a shortfall, your planner can help you identify the steps you need to take to close the gap.
 
A planner can also help you: 

• Decide how best to draw from your pension and other sources of savings
• Ensure you’re managing your investments tax-efficiently
• Stay abreast of vital changes in financial legislation.

To find out how we could support you, please email info.wp@titanwh.com or call 0800 048 0150.

Please note
The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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.
 
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
 
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
 
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate cashflow planning or tax planning.

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