It will be many people’s aim to retire as early as possible, but this is easier said than done. Pension planning requires decades of careful planning, but Marcus by Goldman Sachs suggests that by implementing a strategy of building up a flexible portfolio which can be tinkered with over the years, Britons could achieve their retirement goals.
The bank has provided a money guide for people looking to retire earlier, outlining how to plan ahead using a combination of pensions and investments to help gain financial security.
Here are Marcus’ tips and tricks for making retiring earlier, easier:
How could you reach a financial position from which you could retire comfortably?
“Retirement is an exciting prospect. No more work. Plenty of time for your hobbies. No ties to a job, so you can go where you want, when you want. But to get there, you’ll likely need a plan. The ideal strategy is to start planning as early as possible.
“These days, fewer people have the luxury of the guaranteed income of a final salary pension, and we’re all having to wait longer for our state pensions. So, if you want to have enough money in retirement, it’s a good idea to plan ahead. The more you prepare, the more likely you could have the retirement lifestyle you want.”
Marcus said the first thing people should consider is their definition of a comfortable retirement. Everyone will have a different view on this, so setting out one’s goals from the start could help them plan for their ideal future.
They said: “Financial planning is not the most exciting thing in the world, but if you want a fun, secure and comfortable retirement, it may be vital. It’s important to remember that retirement planning evolves over time and begins with identifying your retirement goals, and the length of time you may need to save to achieve them.”
Quantifying a comfortable retirement
The definition and expectations of a comfortable retirement will differ from person to person. However, Marcus say it can be helpful to spend some time doing the maths on how much one has saved for retirement, as well as what one’s retirement income and expenses may be.
“On the income side, you may want to check how much is in your pension pot and understand how much you could get from your state pension,” they said.
“You can check your state pension online to get a forecast to find out how much you could get and when. It could also be a good idea to check what other income you’ll have in retirement and how it might change.
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“As far as expenses go, you may want to add up all the living costs you have now and make sure that your retirement income will provide you with enough money to live off. It may also be worth considering how your living costs may change in retirement and build those adjustments into your budget calculations.”
Starting your retirement plan early
“Right now, you could be in a demanding job, have a young family to care for, or little time for those hobbies you love. Thinking about your pension may seem dull, but it is important. It might feel like a long way off – it may even seem like a lifetime away – but before you know it, it will be knocking on the door.”
Marcus says one of the best ways to approach retirement is to start thinking about making contributions to your pension pot early to prepare for any obstacles that could get in the way of planning, such as paying off student loans, buying a home, and starting a family.
They said: “Getting a head start in your 20s and 30s means your investments have plenty of time to mature. As you get older, you may be able to take advantage of earning a higher salary to give your savings a boost. You may reach an age where your mortgage is paid off along with other debts, giving you even more disposable income to put aside.
“Now you can see why planning early might be a good idea.”
Where will your retirement income come from?
There are three basic sources of retirement income; state pension, company pension and private pension. However, Marcus says retirement income does not just have to come from pensions. It could be topped it up with any ISAs that one has, interest from savings, or income from rental properties.
The bank explained: “ISAs can be a tax-efficient way of saving for the future. They are popular because they can be cashed in at any time. Through them, you can invest in cash savings accounts, investment funds, or a combination of both.
“One of the most challenging aspects of creating a comprehensive retirement plan is striking a balance between realistic return expectations and a desired standard of living. An optimal solution could be to create a flexible portfolio that can be updated regularly to reflect changing market conditions and retirement objectives. And start early!
“If you need more guidance, a financial advisor can give you an idea of what your retirement income will be, based on how much you’re saving.”
The current value of the full new state pension is £179.60 per week, which affords retirees with income of £9,339.20 each year. The full basic state pension is worth £137.60 each week, adding up to a yearly income of £7,155.20.
It is believed that the state pension is not enough for pensioners to live on, as research has found it to fail to cover as much as four months of the year for the average pensioner. This only highlights the importance of British workers making their own personal pension contributions to top up their retirement savings.
Auto-enrolment has helped make it easier for employees to easily contribute to their pension, but at the minimum contribution level, this is also not expected to be nearly enough to allow people to rack up enough money to eventually live on in later life.