The secrets of calculating a wealthy retirement

There’s no better time than now to plan for your retirement. Retirement planning is essential in the UK: we're enjoying longer retirements than ever before, primarily because we’re living longer. This extended retirement period must be conscientiously planned and funded and we must each take personal responsibility for it. In this article, our Wealth Planner offers their secrets to planning a wealthy retirement.

Don't rely on the government for your retirement planning

When you start planning for retirement, you can’t rely on your state pension. You can’t rely on the government to support you in old age, it’s up to you to make your own arrangements and plan carefully to ensure you can enjoy your later years in the comfort that you aspire to.

If we are to realise our aspirations and attain our desired quality of life in later years, we simply need bigger pension pots than before. Even more importantly, we need to start planning for retirement as early as possible.

Start planning for retirement by calculating how much you think you’ll need

Clients always ask us when they start planning for their retirement: “will I be able to retire when I want to? Will I run out of money? How can I guarantee I’ll retire wealthy and have the lifestyle I want?”  Because no-one knows exactly how long they’re going to live or what financial challenges they may face, these are hard questions to answer. Pensions, as one aspect of planning a wealthy retirement, can be complex with so many considerations, including your family circumstances, pension rules and tax regulations.

Firstly, you’ll need to work out how much you have already saved and how much more you can afford to set aside. Then assess how much you think you’ll need to maintain your desired lifestyle and how long you realistically might live - then compare the two. This is an exercise that our Wealth Planners often undertake with clients when discussing their retirement plans.

We can also build a personalised cash flow forecast for you, which looks at your current wealth alongside your income. We also run different scenarios to see how they might work to fund your retirement.

If you would like to carry out your own assessment, use our retirement wealth calculator below to quickly and efficiently see how much money you’ll have in retirement.

Take advantage of your workplace pension 

Whether you’re employed, a partner, or self-employed, you can contribute into a pension. Employers are legally bound to offer workers access to a pension scheme, while anyone self-employed or unemployed, who can’t invest in an occupational plan, can pay into a personal pension, such as a SIPP (Self Invested Personal Pension) or a stakeholder policy.

Pensions are the most tax-efficient wrappers available to investors, with up to 45% income tax reclaimable on contributions. What’s more, many employers see their defined contribution workplace pension schemes as a valued and affordable benefit, so they offer generous contributions to their employees. If you’re an employee and not currently a member of your company’s pension scheme, ask your HR department for details.

For more details about how much you can contribute to your pension, and for details of the annual pension allowance, read our expert information.

Start saving for retirement when you're young

By investing at a young age, you can also help ensure a comfortable retirement. As the graph below shows, a 25-year-old contributing £200 each month (including employer contribution) can generate a healthy pension to supplement their state pension.

If they were to contribute £200 per calendar month until the age of 68, rising in line with inflation at 3%, and if that pension generated returns of 5.75% per annum, they’d have a fund of £741,337 on which to retire.

What can I do if I don’t have as much as I want?

Part of the answer to this could come from planning to work for longer. If you factor in some part-time income for a few extra years, you can supplement your savings and pension, helping them go further, and you may even be able to build extra savings too.

These calculations are not straightforward and, of course, you will need to make assumptions about how much you can expect to earn on your savings and investments, which a Wealth Planner may be able to help you with.

Our quick tips and secrets to retirement planning

1. Start early – average life expectancy in the UK is getting higher, making retirements longer, so we need more money for later life
2. Take responsibility for your own financial future – final salary pension schemes are far less common than they were so the burden is falling on ourselves and not our employers
3. Save what you can – a little regular saving now goes a long way in the future
4. Regularly check that your plans are still on track – if your circumstances change you may need to adjust your retirement options
5. Seek advice when you need it – wealth planning can be complicated, especially further down the line when you may have multiple pension pots or more complex requirements. Free pensions advice is available from Pension Wise (an impartial government service to help you understand your pension options) — or a Wealth Planner can look at your individual situation to ensure all your investments are working in line with your long-term needs.

If you’d like to speak to a wealth planning specialist at Canaccord to discuss your plans for retirement in more detail and find out how much money you need and you’ll have when you do retire, let us contact you.