Saving for your pension is a significant part of your life, and while it may seem like way in the future, the time to access your pension savings often arrives sooner than expected. Building up your pension fund (accumulation) is usually straightforward, but planning how to withdraw that money (decumulation) is sometimes overlooked or only considered at the last minute.
Very few people have the benefit of a defined benefit or final salary pension, where your income is guaranteed for life. Most of us need to decide when and how to withdraw our pension funds and planning ahead can ensure you’re making the most out of your pension in retirement. The last thing you want is to deplete your savings too quickly after a lifetime of saving.
HOW SHOULD I PLAN?
Your plan will vary based on your individual circumstances, and many external factors will need to be considered, some of which are beyond your control. For instance, you can’t accurately predict your life expectancy, market performance, or inflation levels. However, you can plan for how to handle these uncertainties should they arise.
KEY CONSIDERATIONS
Where is your money?
You might have a mix of workplace, private, and state pensions that become accessible at different ages. It’s also essential to know what state pension you are entitled to. Additionally, consider any savings, stock market investments, or rental income you may have. All these should be part of your overall plan.
When do you want to retire?
The earlier you retire, the longer your money needs to last. Ensure you have enough funds to support your desired lifestyle, which will influence the realistic age at which you can retire. While predicting life expectancy is challenging, tools and expert advice can help you plan for various scenarios.
How much retirement income would you like?
A common guideline is to aim for a retirement income that is two-thirds of your current salary. However, many external factors need to be considered alongside this. Tools are available to estimate what a minimum, moderate, and comfortable retirement might look like for you. Creating a budget based on your current spending can also help.
How much retirement income do you have?
While it’s essential to think about your desired retirement lifestyle, it’s equally important to consider the reality of your available retirement income and how long it needs to last. We can help you explore different scenarios to balance your desired income with what’s achievable, based on your individual circumstances.
How can I structure my retirement income?
In addition to your state pension, there is an option to secure an annuity with part or all of your retirement fund, providing a guaranteed income for life. Alternatively, or in conjunction with an annuity, you can access your pension flexibly through Flexi Access Drawdown. This allows your funds to remain invested, they can rise or fall in value, with the option to choose how much you withdraw each year. However, you must remain mindful the drawdown pot is exhaustible.
SUMMARY
As highlighted above, it’s crucial to review your pension savings and plan their use well in advance. This proactive approach can help you identify any necessary measures to achieve your desired retirement. It also provides peace of mind, ensuring your retirement meets your expectations before it’s too late to make changes.
At PM+M, we can assist with all these questions by creating a personalised cashflow plan based on your current circumstances and agreed assumptions. A cashflow forecast can help you determine:
-How much do I need to save?
-How much does my fund need to grow each year?
-When do I need to retire?
-How much can I afford to spend during retirement?
-What is my income underpin requirement?
GET IN TOUCH
For more information or advice on your pension savings and retirement planning, contact our financial planning team by emailing financialplanning@pmm.co.uk or calling 01254 679131.
A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.
