Among rising inflation and soaring household bills, planning retirement and how we’re going to fund it, can be low on our list of priorities.
When we do finally set aside time for planning retirement it can be difficult to work out how much we’re going to need or for how long.
If you’ve reached mid-life without thinking too much about your future finances, you’re not alone. Many of us could be described as ‘financial late bloomers’.
The good news is that it’s never too late to start planning for your retirement. Whether you’re in your twenties or your fifties, the key thing is to act now so you can give your money time to grow.
Everyone has different circumstances and different expectations. A good first step is to assess your current financial situation. While a pension is one way you can plan for your future, there are other ways of investing and saving money.
The HSBC UK retirement calculator provides users with an estimate for how much you need to save each year to achieve the lifestyle you want in retirement.
Lifestyles are based on the Pensions and Lifetime Savings Association (PLSA) retirement living standards:
- Minimum – geared towards paying for essentials with all your needs covered.
- Moderate – gives financial security and some flexibility.
- Comfortable – provides more financial freedom and some luxuries.
To help you find out what retirement lifestyle is most suitable, think about your everyday expenses such as how many holidays or trips you’d like to take, how often you may change your car and how much you’ll be spending on gifts. You can input this into the calculator to create your own personal savings plan.
These considerations are important because data shows there is a big gap between people’s current financial position and their aspirations for retirement. HSBC UK has found people are facing an average shortfall of over £10,000 a year compared to what they need to live the way they want to when they retire.
An income of £20,000 a year may seem comfortable for retirement but once you are retired you may find it doesn’t fund the holidays you were expecting to take, the odd luxury here or there, or the car upgrades. Those come with a need for a higher income, which may leave you with a shortfall.
Once you have a savings plan, think about how you can boost the amount you’re saving. Take a fresh look at your finances to see if you could be smarter with your money, or think about whether you could generate any extra income for your retirement from a hobby or side job.
If you can put money aside, you might consider investing into a stocks & shares ISA on top of your pension. There’s still time for your money to grow and an investment could give you more flexibility than investing in a pension.
If you’re married, in a civil partnership or in a stable relationship with shared assets, it could make sense to look at both your pensions and savings together. Our retirement calculator can help you work out the joint cost of living – as two can retire more cheaply than one.
And let’s not forget your pension. Under ‘auto enrolment’ rules, employers are required by law to offer a workplace pension to anyone between age 22 and state pension age who is earning at least £10,000. The minimum total contribution under auto-enrolment is 8% of ‘qualifying earnings’, with 3% coming from the employer, 4% from the employee and 1% via basic-rate pension tax relief.
Small changes to outgoings add to your future funds
If you can free up more cash to go towards your retirement, now’s the time to increase your pension contributions. For example, you could change your weekly takeaway to monthly and put the money you save (£25 a week = £1,000 a year) into your pension instead.
This way you can add as much as possible to your retirement savings and make the most of the tax relief from the government. The longer you have your money invested, the more time and potential it has to grow.
If you’re getting closer to retirement age and are concerned that you won’t have enough money, think about whether you can delay when you finish work. If that’s an option, let your pension provider know as it may make sense to change where your pension is invested.
Switching to reduced working hours or ‘semi retirement’ can be a way to have more financial security while also achieving a better work-life balance.
Funding your retirement can be a daunting prospect, but by planning how much you’ll need, and working out how to build up your pension pot, you’ll be in a great position to live your best life in later life.
Rebecca Owers is director of premier and wealth distribution at HSBC UK
