Building a retirement plan: the stress-free way
Building a retirement plan is always tricky. Many of us don't want to dwell on getting older or face up to the harsh reality of securing our futures. However, making a retirement plan doesn’t have to be a frightening task.
It’s never too early to start planning financially when it comes to retirement!
Setting it down in writing will provide a logical financial course to follow and help remove any future worries as well.
What is a retirement plan?
A retirement plan is your plan for survival when you are no longer working. It can include several different types of investments. Any plan made should also be in line with your intending retirement age. Whilst having a clear idea of your expected monthly income.
Why is having a retirement plan important?
Few of us are able to continue working forever, and even fewer of us would want to! After a lifetime of hard work, most of us look forward enjoying the fruits of our labour. This may mean having more time to spend on hobbies, travel, or realise a lifetime goal, such as living abroad.
A retirement plan is a hugely important facet of general financial planning. Essentially you are preparing for a time when you don’t have a regular working income to fall back on. Careful planning is needed to ensure that you have sufficient funds for you and your dependents to retire comfortably.
What’s the difference between a pension and a retirement plan?
The two terms are sometimes intertwined, but in the modern age, there are distinct differences. The UK no longer has an official set retirement age. However, some industries may write a finishing age into their employee’s contracts. This ultimately means that one can take a pension without retiring, once your pensionable age is reached.
A pension plan does what it says on the tin – it includes either a state, workplace or personal pension. These are regular payments or lump sums accessible at a specific age.
A retirement plan is a wider term. It may include a pension and other investments. It's designed to be used when an individual actually ceases to work.
Types of retirement
As we’ve mentioned above, there’s no set retirement age in the UK anymore. This means it is important to consider the type of retirement that you’re planning for.
Traditionally, retirement means an end to work. So for the benefits of this article, this means setting the desired age and ending your time working. Then you can live wholly off your pension and other investments.
On the other hand, you could opt for semi-retirement. This may mean keeping the same job but reducing your hours.
Or it could mean taking a different job entirely but on a part-time basis. It’s worth comparing these options as being semi-retired means still having an guaranteed income. This results in not having to rely on saving as much money in the long term from month to month.
How to set up a retirement plan
Retirement plans differ wildly from one individual to the next. As a general rule, they should be created in a similar fashion to a business plan. With an end goal in mind and a series of steps showing how this goal can be achieved. If the whole thing seems too unwieldy to manage at any stage, consider speaking with an independent financial advisor.
1. Establish your end goal
Ask yourself, what do you really want your retirement to be and look like? You should consider the likes of your location, monthly income, outgoings, and how you wish to spend your time. Don’t rush this part of the process – setting your end goal will influence all of the following steps to come.
2. Time-frame
Next, consider what age do you want to be retired? Your intended retirement date will impact the amount of money you’ll need to invest in your plan every month.
3. Investments & assets
For some, investments or assets may simply be a pension pot. Don’t forget to include your state pension alongside personal and workplace schemes you may already be on. For others, it may involve pension schemes plus a range of investments, such as a property portfolio or stocks. If your current portfolio doesn't align with your goals, you should consider other investments to turn them into a possibility.
4. Contributions
This is the amount of money you contribute in order to meet your time frame and end goal. As the last piece of the jigsaw, this calculation will give you a clear figure to put aside every month.
5. Review
It’s unlikely that a retirement plan will remain the same for life. The cost of living rises, our lifestyles change, and some of us may have children or take on other dependents. Be sure to regularly review your retirement plan and make the necessary adjustments to avoid being left short in the future.
A little knowledge goes a long way and that’s true when it comes to building a retirement plan. Getting started on your plan as soon as possible is a sure-fire way of securing your future. It also removes the stress from the situation to set your retirement set up with no bumps.
By establishing goals you’ll then be able to build a clear vision of how to get there. Additionally, you will have peace of mind that your and your family’s future is already secured.