The beauty of retirement planning is that there is no one plan that fits all. If we all knew when we are destined to die, we may plan to spend our last penny on our very last second of existence. Short of knowing the answer to this question, we need to take control of what we can influence and reverse engineer this into our life. To understand whether you have enough to retire, you need to understand what retirement means to you.
What does your retirement look like?
There are infinite ideas about what a good retirement could look like, which is why it is impossible to put a generic monetary amount on what a ‘good’, ‘comfortable’, or ‘basic’ retirement will look like. When you picture retirement, what does it look like to you? For those who are retiring from full time employment it may be difficult to remember when you had an unlimited choice of what to do with your time.
The level of thought behind what you will do with your time is vital. This will allow you to put a cost on your dreams and goals.
How will you fund your dream retirement?
Income that would have been derived from employment will need to be drawn from other sources. These sources will have been accumulated throughout your lifetime and will consist of pensions (occupational/private pensions), ISA’s, cash savings, inheritance, property, or the sale of a business to name a few.
Your pensions currently will provide a tax-free lump sum of 25% from age 55 and the remainder is usually available to be drawn on as either taxed income or as a taxed lump sum.
And don’t forget your state pension. If you have had between 10 – 35 years of National Insurance Contributions in your working life, then you will also be entitled to a state pension (35 years of contributions would make you entitled to the full state pension).
Will you spend more or less money in retirement?
In relative terms, the answer is you are likely to spend less in retirement, although you may begin your retirement by spending more because of the abundance of free time on your hands. However, there are reasons why your income is likely to go further in retirement.
Firstly, you are likely to be mortgage free, which is generally an individual’s largest ongoing expense during their working life. Most people will see the end of their mortgage as a reason to think about retiring.
Secondly, you will not be saving a proportion of your income for retirement as you will already be there and you will not be paying any National Insurance contributions on your income, for basic rate taxpayers, this could save around 12% of any income.
Here at Wingate we use advanced planning tools to provide you with cash flow plans based on different scenarios to help you visualise what your retirement could look like and then by working together, we build comprehensive plans to help you maximise the chance of you achieving your retirement goals. If you want a better understanding of whether you have ‘enough’ to retire, contact Wingate for a free initial meeting to talk through your options.
