Pension planning tips to maximise your savings
Start early, assess what you have and how much you'll need, and if you need to, bridge the gap.
If you want to ensure your pension provides you with a good income throughout your retirement, you need to prepare. Here are some things to consider.
Start pension planning early
The earlier you take control of your pension and start planning, the easier it will be to hit your retirement targets. However, don’t panic if you are close to retirement age, there is still plenty you can do.
If you are still many years from retirement, now is the time to review how your pension is doing, look at what income you are forecast to get and take steps to increase your pension either through boosting your contributions or taking more risk with your investments.
Work out how long your pension needs to last
Research by HSBC found that people in their 50s and 60s generally believe they will die younger than statistics suggest. For example, men born in the 1940s surveyed when they were 65 gave themselves a 65% chance of making it to 75. In fact, the official estimate is 83%.
The average 65-year-old woman can expect to live another 21.5 years, according to the Office for National Statistics (ONS). A man of the same age is likely to live for another 19.1 years. You can use the ONS life expectancy calculator to find out your personalised results.
Of course it is impossible to accurately predict when you will die, but if you have an informed idea, you are better placed to plan how long your pension needs to last.
Take stock of what you’ve got
Knowledge is power, so it is important to know how much you are currently on track to have in retirement. This is fairly simple to do. Your pension providers should issue an annual statement that shows how much you have in your pot and how much you are forecast to have when you retire. It should also give you an estimate of what income that will give you.
Add all the figures together and you’ll get an idea of what your retirement income is set to be. Remember, though, that the figure isn’t set in stone. Your eventual retirement income will depend on how much you save, how your investments perform, when you retire and how you choose to take your retirement income.
» MORE: How to plan for retirement
Consider how much retirement income you will need
Once you know how much income you are likely to have when you retire, it is time to work out how much you will need. The good news is most of us overestimate this figure. When you stop working, a chunk of your monthly expenditure stops too. You are no longer commuting or buying an office wardrobe or popping out for coffee every day. Plus, if you have a mortgage you will probably have cleared it.
The Pensions and Lifetime Savings Association estimate the average person needs an annual retirement income of £20,000 for a moderate lifestyle, and £33,000 for a comfortable retirement.
Bridge the gap
You’ve worked out roughly how long your retirement will be, what annual income you are on track to have and what income you would like to have. Now it is time to bridge any gap.
It might be that you are on track for the retirement you want. In which case, well done and keep doing what you are doing.
If there is a gap between where your pension is and where you want it to be, don’t panic. There is plenty you can do to boost your retirement income. It could be that you start making bigger monthly pension contributions or pay your annual bonus into your pension. Alternatively, you could reconsider when you want to retire, or whether you would be happy doing part-time work to supplement your income.
» MORE: Tips for saving for retirement
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Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more