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Retirement can feel a long way off….but it really isn’t! It’ll be here faster than you realise, and if you’re in your 50s and 60s now, it’s right in front of you.
My hope is to inspire younger generations to take note and look at their retirement and plan for it now. It doesn’t matter WHEN you want to retire, only that you have the money set aside to do something WITH your retirement, be that travel, help care for grandchildren, or start an epic adventure doing something you love.
The younger you are when you do this the better. But don’t use this as an excuse – it’s never too late to start!
What Does Retirement Mean For You?
So before you press the snooze button and turn away, take a moment to visualise what retirement means for YOU. How old are you when you want to be able to give up work? Because that’s affectively what retirement means. And no it doesn’t mean being a millionaire and owning a private yacht (although if that’s your thing, go for it!).
Everyone’s retirement looks different. Some people call it financial freedom, and others call it financial independence. What they all have in common is that you reach this point when your assets pay for your lifestyle in its entirety and you no longer need to work. The sad truth is, only a fraction of people will do what it takes to get there (if they even understand this concept at all).
In my view, this all starts with your pension from work, because for most people, aside from their house, it’s the only asset they’re ever likely to own.
How To Plan For Your Retirement
Now you have a better understanding of what retirement means for you, you can put a cost to that. How much does your ideal retirement need to sustain it? If you want to travel every few months and go on luxury cruises, then you’ll need more than someone who is planning to travel across the country in a camper van.
Some people persue other activities in retirement; they write books or create businesses, especially if they retire young. Retirement no longer means what it did in our grandparents generation. Retirement should be FULL and ACTIVE for as long as possible.
And WHEN you want to retire can have an impact on how much money you need to set aside for it too.
Use A Pension Calculator
Once you understand the annual sum you need for this ideal retirement, and at what age you want to aim for, you can use a pension calculator with a degree of understanding of what it is showing you. Pension calculators allow you to work out if your current contributions towards retirement are enough. It will show you a monthly income and when you can start collecting the pension.
When you work out yours, what will you find? Will there be a shortfall in what you expect to receive vs. reality? If yes, then you have some work to do, and the earlier you start the better.
When you work out yours, what will you find? Will there be a shortfall in what you expect to receive vs. reality? If yes, then you have some work to do, and the earlier you start the better – Dr Nikki
The rule of 25
Another way of working out how much you need is to use the rule of 25. Take the annual amount you think you need, then times it by 25.
So if you want £1500 per month, x 12 to get the annual amount (£18,000), then time by 25 to get the total lump sum you need. In this case, £450,000.
In theory, this pot could last you 30 years as long as you adhere to the rules on withdrowing 4% per year (which in this case would be the £18,000 that we need).
Why Is Starting Early Important?
This comes down to the magic that is compounding. It’s what happens when your money makes money on itself. The more you have invested into a pension or other type of investment, over time, this money has the opportunity to grow. I think of it as money having money babies – and they have babies, and thy have babies, and on and on it goes.
The younger you are when you start this process, the LESS money you need to put in. The older you are, the more you will need to contribute (and work harder at the rate of return your money makes too – this is the SPEED that it compounds at).
The Money Saving Expert has a handy rough rule of thumb to calculate how much you should ideally be contributing:
Take the age you start your pension and halve it. Then put this % of your pre-tax salary into your pension each year until you retire – https://www.moneysavingexpert.com/savings/discount-pensions/
That can seem like a HUGE number if you’re starting later in life, but the closer you can get to this figure, the better it will be for you in the long run. If you are an employee, your work-place will be putting in a % of your income, and you will be contributing a % too. Find out what that is and make sure you are maxing out all the contributions you can from your employer (it’s free money!).
If it falls short of the number you calculated based on your age, then you need to be doing EXTRA things above and beyond your work-place pension (e.g. property/stocks&shares etc).
What If You’re Self Employed?
If you’re self-employed, then you don’t have the luxury of free money from an employer, but you can still claim money from the government in the form of tax relief.
If you employ people, then you have to provide a pension for them. One option is the UK Government set up the NEST scheme that enables you to do this quite easily and cheaply. You can also join if you work alone.
There are a number of different options for you to get involved in. A simple google search will help you to find a pension tailored to you as a self-employed person in whichever country you live in. If you have an accountant, you can also ask them for recommendations and to help you set it up within your company to help you save on corporation tax through employer contributions (if your business is a limitedcompany).
If you want advice on exactly which one to set up, then you’ll need help from an IFA.
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If you’re still not sure
Sometimes it helps to sit down with someone to do this exercise. Financial Planners will look at your life goals and help you to work out how to reach them. If you’re too nervous to talk to financial planner, why not speak to a money coach like me to help you start to unpick what is important to you and help you gain confidence in taking your next steps.
If you’re interested in hiring me as a coach to help you do this, fill out this application form to get started.
Resources To Help You Start Thinking About Retirement
My free resources all bundled together for you to download to help you start looking at how you can build your retirement funds.
A handy pension calculator to work out how much you need (and if you’re on track): Money Helper Pension Calculator
A great resource if you have questions about your pension: Money Helper’s Pension Resources
The Bottom Line
Whatever your age, retirement matters (assuming you don’t want to be working for the rest of your life of course!). So start getting curious. How much is in your pension? How much do you need it to be? How will you make up the difference?
As always, you can come into the Private Facebook Group and ask in there. We’re a supportive bunch and will celebrate your wins with you!
Good Luck,
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