Few people like the idea of sitting down and working out whether they will be able to afford to retire, but understanding both the benefits and risks associated with a few basic retirement planning steps could help you make the process easier.

Our team at EveryInvestor has compiled this guide containing the basics of retirement planning, based on common questions we receive.

At EveryInvestor, we are committed to maintaining the highest standards of accuracy and comprehensiveness. 

Our researchers have carefully analysed the latest equity release news, and our editorial team reviews, fact-checks, and updates our content to ensure it remains current, relevant, and undergoes extensive quality checks.

This article was researched and written by a team of financial experts, without the use of AI assistance.

Note…

This article is intended to be an information aid only and should not be considered financial advice. Always consult a professional financial advisor before making any retirement planning decisions.

Therefore…

What is Retirement?

Retirement is a life stage where an individual, typically after a long career, voluntarily exits the workforce and transitions into a period of life characterised by reduced or no employment.

During retirement, individuals often rely on savings, pensions, and social security to fund their lifestyle and pursue personal interests and leisure activities.

Learn more: How Much Money Do I Need for Retirement

What Are the Essential Retirement Planning Steps for a UK Resident Over 55?

Firstly, you should carefully assess your financial situation, and consider any state and private pensions, savings, and investments.

Secondly, it is essential to understand your spending needs in retirement. This includes essential living costs, lifestyle choices, and potential care costs. A comprehensive budget will provide a clear picture of your financial needs.

In addition to the financial aspect, it is crucial to consider where you want to live in retirement. Whether you plan to stay in your current home, downsize, or relocate, your living situation will significantly impact your expenses. Lastly, do not forget about estate planning.

This includes setting up a will, considering inheritance tax, and appointing power of attorney if required. Remember, retirement planning at this stage is not just about surviving but thriving.

Prepare a Retirement Planning Checklist

Creating a retirement planning checklist can help you stay organised and ensure you cover all essential aspects of retirement planning.

Some items you should include in your checklist…

• Set goals. 
• Estimate income needs. 
• Review pensions and investments.
• Seek professional advice.

These will not be the only items on your checklist, but to find out what the others should be, you will have to do some homework. 

The steps outlined in this article will help you consolidate your retirement planning checklist so you can start organising your later-life finances with confidence.

What Are the 5 Best Planning Tips for Retirement?

The five best planning tips for retirement are setting clear goals, determining your financial needs, considering your income options, creating a comprehensive retirement plan, and seeking professional advice to understand potential drawbacks. 

These tips can be helpful steps to follow when you start planning for a comfortable and secure retirement.

Therefore… 

Step 1: Set Clear Goals

Setting clear goals is the first step in retirement planning and involves defining your objectives and desired lifestyle during retirement. 

It is essential to consider factors such as your target retirement age, the kind of lifestyle you envision, and any potential expenses, such as travel, leisure activities, or supporting family members. 

Gaining a clear understanding of your retirement goals enables you to develop a tailored financial plan that meets your needs and aspirations.

Identify a Strategy

Identify a balanced strategy that will help you pinpoint your retirement goals, plan your finances accordingly, and consider both the potential benefits and risks associated with these goals.

One strategy for doing this involves breaking your planned expenditure into ‘essential’ and ‘non-essential’ categories.¹

Essential expenditure includes things such as housing, utility bills, and food, whilst non-essential expenditure includes holidays and entertainment for example. 

Use a Budget Planner

A budget planner can assist you in keeping track of your income and expenses, identifying areas where you can make savings, and establishing manageable financial objectives for retirement. 

You will be able to find this kind of tool online, or you could simply put together a budget by going through your bank statements and setting up a spreadsheet or manual ledger.

Highlight all your essential and non-essential expenditure going back a few months, and use this information as a starting point.

Be SMART

According to advisors and commentators, employing what is known as the SMART strategy can also be a good place to start.²

How this approach works…

• Security: Thinking about security in retirement is about identifying and managing risk. What would you do, for instance, if you became ill and required ongoing care?
• Management: Speak to a financial advisor when you start planning for retirement. If you would prefer the DIY approach initially, think about simplifying your finances by consolidating bank and investment accounts so your portfolio is easier to manage. 
• Activity: Something that is often overlooked is how you are going to remain active after retirement. Will you be pursuing hobbies? Travelling? Depending on your plans, you may need to budget for the activities you would like to prioritise. 
• Realism: It is incredibly important to be realistic at this stage of your planning. What kind of retirement lifestyle can you anticipate? Would it make sense to delay retirement by a few years to build up more of a pension, or to keep working part-time?
• Transitioning: Moving from one stage of life to another is, in a sense, the crux of entering retirement. Use this planning step to help you think about your will, your beneficiaries, and whether you should contact an estate planning expert. 

While employing this SMART strategy, it is crucial to continue educating yourself on the benefits of different retirement approaches and to keep abreast of developments such as changes to pension rules and rates adjustments that could affect your planning. 

Remember…

Whichever strategy you use, it is very important to factor in inflation and account for any large, one-time expenses, such as repaying a mortgage, starting a business, or funding a child’s education. 

In addition, consider any potential risks, such as health issues or economic downturns, and ensure your goals are flexible enough to adapt to changing circumstances. 

Regularly reviewing and updating your goals is vital to ensure they remain aligned with your current situation and future expectations, ultimately leading to a comfortable and secure retirement.

Step 2: Determine Your Retirement Income Needs

To determine your retirement income needs, first estimate your life expectancy and the number of years you expect to be in retirement. 

Then, multiply your desired annual income by the number of years in retirement, adjusting for inflation. 

How Much Income Do You Need in Retirement?

How much income you need in retirement will depend on your desired lifestyle, living expenses, and any unexpected costs that may arise. 

A general guideline is to aim for a retirement income of about 70% of your pre-retirement salary³, but individual circumstances may vary. 

Consider factors such as housing costs, healthcare, travel, and leisure activities to estimate your ideal retirement income.

When Will You Retire?

Deciding when to retire is a personal choice that depends on factors such as your financial situation, health, and lifestyle preferences. 

Some people may want to retire as soon as possible to start travelling and spend more time with their family, while others may prefer to work for longer because they enjoy their career.

Step 3: Assess Your Financial Situation and Income Options

Assessing your financial situation and income options involves reviewing your current savings, investments, and pension contributions. 

Consider all income sources, such as State Pension, workplace pensions, personal pensions, and investments. 

The UK government’s Money Advice Service, MoneyHelper, provides a useful pension calculator that takes into account your current pension contributions, age, and retirement goals to estimate your pension income.

If your savings and pension will not meet your retirement income needs, explore options such as increasing pension contributions, investing in additional income-generating assets, or working part-time during retirement.

How Much Pension Will You Receive?

To determine how much pension you will receive, consider State Pension, workplace pensions, and any personal pensions. 

Check your pension statements and the government’s State Pension forecast tool to estimate your pension income.

Assets

Assets such as property, collectibles, or shares can be sold to generate additional retirement income. 

Consider the potential tax implications and any impact on your lifestyle before deciding to sell assets.

Do You Have Other Income?

Other income sources, such as rental income, part-time work, or annuities, can supplement your pension and investment income during retirement. 

Identify these sources and estimate their contribution to your overall retirement income.

If you are considering doing part-time work during retirement, try to find something you enjoy doing that can generate an income.

Do You Have Home Equity?

Home equity could help you boost your retirement income through downsizing or equity release schemes.

You could obtain an equity release loan against your property and cash out a tax-free lump sum, or take occasional smaller withdrawals.

Review Your Other Income Sources and Assets 

Regularly review your other income sources and assets to ensure they align with your retirement goals. 

This could entail revising your financial plan, making adjustments to your spending, or looking for additional sources of income.

If you own an investment property that generates an income for you, you could continue to receive the monthly rental, or decide to sell the property instead and invest the proceeds.

If you own another property, such as a holiday home, you could consider leasing it out.

Consider Your Investment Options

Investment options such as stocks, bonds, and property can provide additional income and capital growth during retirement. 

Consider diversifying your portfolio across various asset classes and sectors to spread risk and work towards long-term financial objectives.

Remember…

It is important to understand associated risks and potential downsides of investing during retirement: Investing always carries risks, and the value of your investments can go up or down. 

Calculate After-Tax Rate of Investment Returns

Calculate your after-tax rate of investment returns in order to estimate your actual retirement income. 

Factor in the current rates for capital gains tax, dividend tax, and any applicable allowances when making these calculations, and be aware that tax rates and allowances may change in the future.

Also remember…

Actual investment results may be affected by matters such as how the market is performing and your own personal situation.

Assess Risk Tolerance vs. Investment Goals

Balancing risk tolerance and investment goals is crucial to achieving your retirement objectives. 

Evaluate your comfort with risk by considering factors such as your investment horizon, financial goals, and personal circumstances, and adjust your investment strategy accordingly to align with your long-term goals.

Stay On Top of Your Financial Projections

Review and update your financial projections on a regular basis to account for changes in your life, the market, and how your investments are performing.  

This will help keep you on track with your plans for retirement.

Step 4: Make a Retirement Plan

Make a retirement plan by listing your financial goals and how to achieve them. 

Include a timeline for meeting these goals, as well as any adjustments to spending, savings, and investment strategies. 

To factor in changes in your financial situation, market conditions, and personal circumstances, regularly review and update your plan.

Answering the following questions may help you when setting up your plan: 

When Can You Retire?

Determining when you can retire involves assessing your financial readiness and ensuring you have sufficient income and assets to support your desired lifestyle. 

Review your retirement plan on a regular basis and make any necessary changes.

How Will You Retire?

Consider how you will retire, such as gradually reducing your work hours or fully retiring at a specific age. 

When making this decision, think about your personal situation, your finances, and how you would like to live.

Will You Have Any Income Gaps?

Identify any income gaps during retirement, such as unexpected expenses or periods of reduced income, and create a contingency plan to address these situations.

One way to avoid gaps in income is to try and repay as many debts as you can while you are still working. 

If you are anticipating gaps in your income at the planning stage, you could consider retiring later to continue increasing your reserves.

If you think you will need a lump sum to cover a large expense, you could potentially withdraw from your pension.

Always speak to a qualified financial or pensions advisor before making a withdrawal from your pension. 

How Much Tax Will You Need to Pay in Retirement?

In retirement, you may still be subject to income tax, capital gains tax, and inheritance tax.⁴ 

Your tax liabilities will depend on your income sources, such as pensions, investments, and property. 

Use HMRC’s tax calculators and seek professional advice to estimate your tax obligations in retirement.

Step 5: Who to Talk to About Retirement Planning

When discussing retirement planning, it is important to seek advice from professionals such as financial advisers, pension specialists, or independent financial advisers. 

They can help you look at your current finances, figure out what your options are, and make a plan for retirement that fits your needs. 

Ensure that any adviser you speak to is regulated by the Financial Conduct Authority (FCA) to guarantee the quality of their advice.

Speak to a Retirement Adviser

A retirement advisor can provide expert guidance on your retirement planning, including assessing your financial situation, setting goals, and recommending investment strategies. 

Ensure the advisor you choose is regulated by the Financial Conduct Authority (FCA) to guarantee the quality of their advice.

Consult an Equity Release Broker or Adviser

If you are considering using home equity to boost your retirement income, consult an equity release broker or advisor. 

They can help you explore your options, understand the risks, and identify the most suitable equity release scheme for your circumstances.

Discuss With Your Family

Discussing your retirement plans with your family can provide valuable support and insight. 

They may offer suggestions, raise concerns, or help you identify additional resources to achieve your retirement goals.

Finalise Your Choice

After considering all aspects of your retirement planning, finalise your choice by consolidating your financial objectives, adjusting your investment strategy, and regularly reviewing your progress. 

This will help keep you on track to a potentially comfortable and secure retirement.

Remember…

When planning for retirement, it is vital to assess and manage the risks associated with your investments and other financial decisions. 

Diversify your investment portfolio, maintain an emergency fund, and consider insurance products to protect against unforeseen circumstances.

What Are the Benefits of Retirement Planning?

The benefits of retirement planning include financial security, peace of mind, and the ability to maintain your desired lifestyle during retirement. 

By proactively planning for retirement, you can… 

• Minimise financial stress 
• Avoid potential pitfalls 
• Make informed decisions that help you achieve your long-term goals

Understand that your actual results could be different depending on your specific situation and the market environment.

The benefits of retirement planning must be balanced with an understanding of potential risks and challenges during retirement, but do not delay when it comes to looking at your later-life needs and options.

Common Questions

In Conclusion

Planning for retirement involves setting clear goals, determining your financial needs, considering your income options, creating a comprehensive plan, and seeking professional advice. 

You could be on your way to a potentially comfortable and secure retirement by adhering to these guidelines and periodically reviewing your plan.

Once you know how much income you need during retirement, and how much you can potentially generate, it is much easier to plan for the future, so be sure to follow these retirement planning steps.