How to prepare for the holiday of a lifetime – your retirement

Recent research found that the average Brit starts planning their holiday more than six months in advance.

On average, you will spend more than 30 hours preparing for a break that will last one or two weeks. But how much time do you spend preparing for your ultimate holiday – your retirement?

Your retirement could last for decades, so it’s important to plan well. Keep reading for your complete guide to planning for retirement.

5 basics you should know before you start planning

  1. At the point where you retire, you will probably have the most money you’ll ever have. With no more salary coming in, you’ll have to pay for retirement with the cash you have saved.
  2. You won’t necessarily spend less in retirement. With more free time, your expenses may actually rise.
  3. Inflation will eat into your savings, as things will cost more in the future.
  4. People are living longer. Whatever age you stop working, you need to plan to be retired for a long time.
  5. Investing comes with risk. While a good investment strategy is important if you want to ensure you have enough money in retirement, remember that with higher potential returns comes higher risk.

Planning for your retirement should start by asking yourself some questions.

  1. Do I plan to work in retirement?
  2. How much money will I need?
  3. What savings or other investments do I have?
  4. What pensions will I receive?
  5. What is my health like, and how long am I likely to live?
  6. Do I want to leave an inheritance when I die?

How much money will I need for retirement?

No two people are the same so only you will know exactly how much you will need in your retirement. When you stop working you’ll then rely on:

  • The state pension
  • Any pensions you have arranged
  • Any savings, investments or assets that you own
  • Income from any work.

Once you have established the annual income that you will need in retirement, work out how much of it will be provided by the above. The difference is the amount you’ll need to work towards – and don’t forget to take inflation into account.

I don’t have enough in my retirement fund. What do I do?

Whenever you are planning to retire, the time to start planning is right now.

Your first step should be to pay off any high interest debt that you have, such as credit cards or loans. Then, save up an emergency fund of between 3 and 12 months of your salary in case your circumstances dramatically change.

Then, you’re ready to start planning for your retirement. The basic goal is to save, invest and grow your pension pot so you have enough income for as long as you live.

One place to start is your employer’s pension. Benefits of a workplace pension include:

  • Automatic contributions – the money is deducted from your salary before you receive it
  • Convenience – all the paperwork is done for you and it’s easy to manage
  • Tax benefits – you benefit from tax relief on the contributions you make
  • Matching – many employers will also contribute into your pension fund, and some will even match your contributions.

If you don’t feel you can afford to pay into a pension, start slowly. The tax benefits and employer contributions make it a worthwhile investment, and you can always increase your contributions every few months.

You may be surprised to see that you won’t really miss the money. If you contribute 1% of £50,000 you’ll be paying in less than £10 per week, and that’s just £8 after basic rate tax. Not buying a coffee on your way to work in the morning should save you enough to be able to fund these contributions!

What should I do with the money I am saving?

Nobody can predict the future or financial markets. But, there are some simple rules that you can follow:

  • Don’t buy when the market is rising and sell then the market drops – many people do this and it’s the opposite of what you should be doing.
  • Maintain a long-term view – you’re likely to be saving over many years.
  • Take advice on where you should be investing, or do your research carefully. The guy down the pub, or your father-in-law may be trying to be helpful, but it often isn’t. Think twice about investing all your savings in bonds or fixed interest to keep your money safe – while they may be low risk you will probably not benefit from enough growth for you to meet your retirement aims or beat inflation.
  • Diversify – make sure you invest in a range of asset classes, countries and sectors.
  • Don’t pick the fund that had the best return last year – past performance is no indication of future performance. Just because a fund did well last year doesn’t mean it will be the best next year (quite often the opposite).

Speak to an expert

It’s best to accept whether you will enjoy this process, have the knowledge and experience to do it justice. Recent *research shows that taking advice pays for itself many times over in the long run.

An adviser will take a holistic view of your financial situation, help you to devise and agree your retirement goals, and help you to meet them through regular advice and monitoring.

If you want tailored advice on your retirement options, get in touch. We offer free consultations in Epsom, Surrey. Click here or call (01372) 404417.

This article is not designed to provide individual advice, please seek professional advice before acting on any information disclosed.

* Vanguard value of advice study

* Royal London research


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