This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
How can you ensure your pension will last? Part of the role of a financial planner is to help you to craft a sustainable retirement plan. Remember, with the average UK lifespan now over 81 years, your pension(s) might need to last 30+ years. Below, our team at Elmfield (financial planners in Padiham, Burnley, Lancashire) offer some thoughts on how to ensure the maximum lifespan for your pension. We hope this is helpful to you. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
Mapping the landscape
To give your pension the best sustainability when you retire, you need to first answer two main questions: “How much do I need to retire?” and “Am I on course to achieve this?” The second, in a sense, is easier to answer. Once you have a target figure in your mind, you can work back from there. However, determining how much you need can require financial advice.
First of all, the cost of living will be different in the future. This is largely due to inflation, which refers to the overall rising in price for goods and services in the UK economy. If inflation rises rapidly, then this erodes the spending power of your pension (i.e. your retirement income does not buy as much as it did before).
The Bank of England (BoE) has a target of 2% inflation per year, but this is not guaranteed. For instance, at the time of writing inflation stands at 7.1% – the highest rate since March 1992. As such, part of your pension plan needs to account for different future inflation scenarios.
Secondly, what are your spending habits likely to be in retirement? For instance, perhaps your monthly outgoings will be lower because the mortgage will be repaid, you no longer have a daily commute and the kids have left home. However, maybe you decide to travel more and/or take up a new, expensive hobby.
Here, it can help to distinguish between your essential costs (e.g. household bills) and your discretionary costs (e.g. meals out) in retirement. Options for cutting costs on the former may be fairly limited, but setting reasonable constraints on the latter can help you establish a realistic target for your pension savings.
Build a pension plan
During your career, your mindset for spending and saving is often different to your mindset for retirement finances. With the former, for most people the immediate goal is to ensure a sensible gap between your monthly salary and expenses. Provided you keep your job, your finances will typically remain stable if you maintain this.
However, the latter often involves taking a large “pot” of money (your pension) and working out whether it can last 20 years, 30 years or more. Here, the danger is that you deplete your pension savings too quickly and – in the worst case – run out of money in retirement.
You need a plan, therefore, to ensure a “safe withdrawal” rate over your retirement. Here, many factors are at play and it’s a good idea to discuss these with a financial planner. A professional can help you make informed decisions and give the best peace of mind about your pension(s) lifespan. Here are some starting ideas so you can get the most from that discussion:
- Maximise your State Pension. The amazing thing about the State Pension is that, under current rules, it is guaranteed throughout your retirement. In 2021-22, the full new State Pension provides £9,339.20 per year. Every year, this also rises with inflation (at a minimum) under the “triple lock system”. As such, to ensure longevity for your retirement income, getting the best State Pension deal is a great pillar for your financial plan. Bear in mind that you need 35 “qualifying years” on your National Insurance record to get the full new State Pension.
- Check any final salary pensions. Sometimes also called “defined benefit” pensions, this type of scheme provides a guaranteed retirement income from an employer (e.g. the policy force). These schemes are now relatively rare in 2022 and are often called “gold plated” pensions due to their generous benefits. Speak to an adviser if you have one – especially if you are thinking about transferring (usually not a good idea).
- Review your investment strategy. Setting these two main income sources aside, the rest of your retirement income is likely to come from investments (e.g. in any workplace pensions). Here, a key consideration is your choice of funds and assets. For instance, certain assets – like bonds – provide greater stability over time, yet typically do not yield as high a return as others. Equities (e.g. company shares) tend to produce higher returns and grow over the long term, but the stock market fluctuates in the short term. Part of a financial planner’s role is helping you establish a mix of investments which is comfortable for you, but which also helps grow your wealth enough to achieve that “safe withdrawal rate” needed for your retirement lifestyle.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
