This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, it is subject to change and we are not responsible for any errors or omissions.
Did you know that around 33% of over-65s worry about running out of money in retirement?
Interestingly, this age group is more relaxed than British adults as a whole (50%!). Perhaps the further away retirement seems, the more intimidating it appears to support one’s lifestyle.
Out of those who are not worried about running out of money, 43% have a final salary pension scheme. In short, because they have a guaranteed income stream from the taxpayer (two if you include the State Pension), there is less reason to worry.
Yet, what about those with pension savings – i.e. pension “pots”, which could run out if not managed carefully? Or, what about those who fear they have not saved enough for retirement?
In this guide, our financial advisers offer some thoughts on how to build a sustainable income in retirement – even if you feel like you may have left your planning a bit late.
Check Your State Pension
As a British adult, you have likely accumulated at least some future State Pension income via your past employment in the UK.
You must have at least ten qualifying years on your National Insurance (NI) record to get anything once you reach your State Pension age (66 for men and women in 2024).
The full new State Pension offers a nice foundational income for retirement planning. In 2024-25, it offers £221.20 a week (£11,502.20 per year). To attain this, you need at least 35 qualifying years on your NI record.
There are two great features of the State Pension which make it worth the investment. Firstly, the income continues indefinitely after you claim it. It cannot “run out” while you are living.
Secondly, the State Pension rises by at least 2.5% each year due to the “triple lock” system, which helps ensure the income keeps up with the rising cost of living.
You can check your State Pension for free on the UK government’s website, which shows your NI record and forecasts your future income.
Even expats can claim their UK State Pension from overseas. The income can be paid into a local bank account, or you can pay it into a UK account and make local withdrawals.
However, please note that the triple lock benefit is not guaranteed to all expats. This varies depending on where you live.
Check Your Current Savings
What pension savings have you already accumulated?
These “pots” are separate from your State Pension and may have been built up during previous jobs (workplace pensions). Some individuals may have private pensions that they opened independently or other savings/investments in other accounts (e.g. ISAs).
It is wise to fully establish your current financial position to understand the “distance” to your target retirement fund.
If you have lost the details of old pensions, try and track them down. If your old employers are still in operation, you could contact them for the pension scheme details.
There is also the UK government’s Pension Tracing Service if you are struggling.
Examine Your Pensions
Once you have identified your pension schemes, it’s time to examine the fundamentals.
This process is often best done with a financial adviser who can help you examine the details. For instance, which funds have your pensions been invested in? What performance has your asset allocation achieved, and what fees have you been paying?
This process often reveals areas of potential improvement. For instance, restructuring your portfolio into other funds could boost your potential for generating further investment growth. There may also be opportunities to cut fees, further boosting your real returns.
It may even be appropriate to “consolidate” certain pension pots, bringing them together into a single, easy-to-manage scheme. This can reduce admin headaches and costs.
Next steps
With the above steps completed, you should have a clearer view of your net worth. However, what kind of income and wealth might you need to sustain a comfortable retirement? How does your current financial position compare?
Again, a financial adviser can help you work through this process confidently. A good starting point is to take your pre-retirement salary and multiply it by 0.66 (two-thirds).
This gives you a rough idea of what your annual retirement income needs could be. To gain a sense of what your “total” fund value might need to be, multiply this figure by 25.
For instance, suppose someone earns £30,000 towards the end of their career. They might need an annual income of £20,000 in retirement. Therefore, they might need a total nest egg of £500,000 to live comfortably and sustainably until their death.
Of course, the calculations are more complex than this. You need to factor in other income sources (e.g. the State Pension), the rising cost of living over time (inflation), fluctuations in your fund value (as markets move around) and changes to your spending habits in later life.
However, the process can help reveal your “target retirement number” and give you a rough idea of what you need to aim for.
If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
Sources
https://www.ageuk.org.uk/information-advice/money-legal/pensions/state-pension
https://www.gov.uk/new-state-pension/what-youll-get
https://www.gov.uk/check-state-pension
https://www.gov.uk/state-pension-if-you-retire-abroad/rates-of-state-pension