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Steps to build future income and fund the retirement you want

Pension & retirement

31 October 2022


Elizabeth Webb

Deciding what to do with your pension is a big decision.

And making the wrong decision could end up costing you dearly through either an unwanted tax bill or even worse, eventually running out of money in retirement!

Likewise, avoiding making decisions could cost you a lot as well.

Many people may be looking at up to 40 years of retirement and as we enter Pension Awareness Week (October 31), Fairstone Chartered financial planner Elizabeth Webb explains some of the steps you can take to help build your future income and fund the retirement you want.


Review your finances

Whatever your concept of a good pension pot, relying on the State Pension alone is unlikely to give you a good enough pension to live on comfortably through your retirement.

‘Will I be able to retire when I want to?’ ‘Will I run out of money?’ ‘How can I guarantee the kind of retirement I want?’ These are all hard questions to answer unless you start to review your finances early and make plans for your future.

Worryingly, it’s been well documented that many people aren’t saving enough in their pension for their retirement and probably the best bit of advice I can give is to just get started.


Start retirement planning early

It’s never too early to start planning for your future. When planning for retirement, the truth is that the earlier you start saving and investing, the better off you’ll be, thanks to the power of your money compounding over time, which essentially means that your money earns interest on itself.

Think of it as a bit like a snowball: the further up the mountain it rolls down from, the more snow it picks up, and the bigger the snowball is by the time it reaches the bottom. Put simply, this is what happens to your money.


Spend one, save one, invest one

As many people’s budgets are being squeezed at the moment, it’s more important than ever to make sure your finances are in good shape. Whenever you can, try to think of the following strategy: for every pound you spend (on a daily basis) you also save one (for holidays or big expenses) and invest one (in a pension or long-term saving for example).

A bonus of using this technique is that it will make you think twice before spending anything and make sure you really value what you spend your money on.


Bumps in the road

It is impossible to precisely time market peaks and troughs, and market downturns can have an impact on the value of your retirement pot, which is directly dependent on the value of the investments your pension fund owns.

It’s important to remember that a pension is a long-term investment and while the fund value may fluctuate and can even go down, your eventual income will depend upon the size of the fund at retirement, future interest rates and tax legislation. Stay invested as history shows the important thing is time IN the market, not timING the market.


Keeping finances in good shape

When budgets are tight, is it often tempting to dip into savings, pensions and investments. But while it may be attractive to do this in the short term, it is important to think about the long-term impact this could have on your retirement plans.

Drawing down on your pension or selling investments could leave you worse off in the long run, especially if the investments are volatile when you take money from them. So it’s important to consider all of your options, such as cash deposits, before making withdrawals from invested assets and even considering if there are other ways of reaching your goals.


State pension forecast

A state pension forecast gives you an estimate of the amount of money you will receive from the Government once you reach retirement age.

You can obtain your forecast online through the Government’s website, visit: https://www.gov.uk/check-state-pension. When requesting your forecast, you will need to provide personal information, such as your date of birth and National Insurance number.

Once you have received your forecast, it is important to keep in mind that the amount stated is only an estimate. The actual amount you receive may be higher or lower than what is indicated on your forecast, depending on a number of factors.


Retirement on the horizon

If you plan to retire within the next five years or so, it’s worth taking advice to help bolster your retirement lifestyle as you approach your planned retirement date.

Cash flow modelling can help you to understand how much income you will need in retirement, work out how long your retirement savings will last, determine the best way to use your retirement savings to generate an income in retirement and find out how different life events (such as taking a career break or downsizing your home) could impact your retirement cash flow.


Impact of inflation

Some people may now need to think about the impact that inflation could have on their retirement income, and to consider whether they can afford to retire yet. Rising inflation can wipe years of retirement income off pension pots as savers must increase the amount they withdraw to maintain the same spending power each year.

To offset the impact of inflation, you may need to adjust your retirement plans. For example, you may need to save more money so that you can maintain your standard of living in retirement. Additionally, you may need to invest in assets that are less vulnerable to the effects of inflation.


Regular review

It’s important to remember that retirement planning is not a one-time event. Your retirement timeline will likely change as life circumstances change.

For example, you may need to adjust your timeline if you have children or other family members who depend on you financially.


Need professional advice to help make your decision?

Remember, the most important step is to do something – don’t ignore your future plans, and ask for help from someone who can offer impartial, well-informed advice to help you make these plans more real and achievable.

For more information about how we can assist you, get in touch below.

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