Planning for your retirement can be a long process that evolves and changes over time. Read this article for useful tips on how to plan your retirement income.
Start as early as you can
When it comes to retirement planning, it really helps if you are an early bird. But this doesn’t mean you have to deposit vast sums of money into your pension plan in your early 20s.
In your 20s and 30s, you will have more immediate financial priorities, such as getting on the property ladder. You may also want to spend some of your income on life experiences, such as world travel and socialising.
At this stage, retirement planning should be taking place in the background. In the age of auto-enrollment, funding your retirement should start with your first job. Making the minimum contribution will be a good start.
You are more likely to change jobs during this time, so make sure you keep good employment records. This will help you when you need to consolidate your pensions from different jobs.
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Define your retirement
Think about what you want your retirement to look like. If you define your retirement, you will have a better idea of your ideal retirement income.
Defining your retirement will be easier to do when you are older. This is because you will have gained experiences over time that will give you an idea of what you enjoy and where you want to be.
Try and think from a financial perspective. Interests such as skiing and photography, for example, can be expensive, so you will need to make allowances for extra income.
Alternatively, if you live and work in the city but want to retire in the country, it might be possible to sell a property and gain some extra funds. Or if you have a passion for DIY, you could do odd jobs part-time for some extra cash.
Track your expenditure
If you track your expenditure while you are still working, it will be easier to predict your day-to-day living expenses when you retire.
It’s a good idea to get into the habit of budgeting and tracking your expenses anyway. This will help to promote good money habits and prevent unnecessary spending.
Think about when
Think about when you want to start your retirement. This will help to keep you focused.
If you are younger, don’t be too specific. Make allowances for the fact that your retirement date may change. This is understandable because life can change in unexpected ways.
You may end up working in a job that you enjoy and decide to delay your retirement. Alternatively, you might come into a windfall and decide to retire early.
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Keep your debts under control
When you’re younger, it will be important to keep your debts under control. As you get older, aim to clear all of your personal debts before your retire.
An additional financial burden is the last thing you should have when you stop working. In retirement, chances are you will be on a fixed income. Existing debt will reduce your retirement income.
Seek professional advice
It’s a good idea to consult a pensions adviser around three to five years before you are due to retire. This will allow you to reduce the risk of your investments and plan how you will start drawing from your pension.
Pension Wise is a government service that offers free impartial advice on what options are available to you. If you are aged 50 or over and have a UK-based defined contribution pension, you can book a 45-minute appointment with a guidance specialist.
For further information, check out our article on when you need an adviser for your pension.
Take home
Planning for your retirement income doesn’t have to be a chore. Some simple steps implemented as early as possible are all you need. It’s a step-by-step process that does take time, but it will be worth it when you are spending your retirement doing things you love rather than worrying about money.
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