The Common Sense Guide to retirement

A major area of my work is helping clients to plan for their retirement to ensure they can maintain their standard of living when they finally go home from work for the very last time and begin the longest holiday of their life.

So how do you decide how much you need to save? Firstly you need to set your objectives and make sure they are realistic. Decide what age you would like to stop working, typically 65 and complete a detailed budget of you expenditure as it stands today then remove expenditure that would typically disappear at retirement, your mortgage for example. This gives you a target age and level of income to aim for.

Let’s assume you have an income of £50,000 a year and are age 30 aiming to retire at 65 on an income of £25,000 a year in today’s terms. A term of 35 years to retirement might seem like a long time but this equates to only 420 paydays to save up enough capital to live off for perhaps 25 years.

We will assume that your premium will be indexed (increased each year) in line with the National Average Earnings Index (average level of pay rises). Based on this scenario you would need to contribute a gross premium of £655.60 per month to a pension. The £25,000 pension would increase in line with RPI, have a 50% spouse’s pension and a 5 year guarantee.

A pension is a tax efficient and disciplined way to save for your retirement. To pay the gross premium of £655.60 would cost £524.48 net of basic rate tax relief and this is the amount you would see deducted from your bank account. A higher rate tax payer could get additional tax relief so the net premium would be £393.36. This additional relief is claimed via your tax return.

More often than not a client will have a number of arrangements already in place; schemes from former employers, personal pension schemes and plans that they are currently contributing to. This can become difficult to monitor and have an understanding if one is on target for your retirement goals.

The key to retirement planning is to have clear objectives and to implement a retirement plan with regular reviews. A suitably qualified IFA will be able to help you plan effectively. State Pension benefits can also be included but you will need to request a BR19 calculation for an estimate of benefits. This can be requested by going to www.thepensionservice.gov.uk, this site also tells you when you will become eligible for your State Pension