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Can I afford to retire?

Can I afford to retire? Image depicts two sun loungers on a pepple beach somewhere in the UK. One chair is red and white striped, the other blue and white. It is a sunny day, and both chairs are facing out towards the sea.

As retirement approaches, one of the biggest concerns for many is ensuring they have enough savings to retire comfortably. But how do you determine what "enough" really means?

“Can I afford to retire?” is a question we hear all too often. In this guide, George Square offers straightforward advice to help you calculate the magic number you need for a secure retirement.

Step 1: Gather your pension information

Begin by collecting the latest statements from all your pensions, including those from previous employers and personal pensions. You can check your state pension forecast via the government website here. Annual pension statements should be sent to you for each pension scheme, even if you’re no longer contributing. If you don’t have these, request updated statements or check online through your pension provider’s website.

Step 2: Value your pension?

Your annual statements will show your current pension value and a forecast for retirement. These estimates consider factors like investment growth and inflation, which can significantly impact your pension’s future value. Once you know how much you have available to you, you can calculate how much you need to fund the lifestyle that you want.

Step 3: Assess your future lifestyle costs

Consider any changes in your expenses. For instance, after you retire, you may wish to spend more on holidays or leisure activities and less on housing. Remember to factor in potential costs like supporting children or grandchildren, and future care expenses.

Step 4: Calculate your savings goal

After accounting for the State Pension and any private pensions, figure out how much more you need to save. This depends on your retirement age, investment returns, inflation, and your existing savings, but a common guideline is to aim for a pension income of two-thirds of your current salary. Workplace pensions often include employer contributions and can offer National Insurance savings through ‘salary sacrifice’ arrangements, significantly boosting your pension pot.

Step 5: Consider alternative savings

Besides pensions, explore other savings options like tax-efficient Individual Savings Accounts (ISAs) or property investments, such as buy-to-let properties.

Step 6: Plan your retirement timing

Retirees have considerable flexibility over how they access their retirement savings. You can access pension savings from age 55 (rising to 57 in 2028). Options include taking a lump sum, regular withdrawals, or buying an annuity for steady income. Be cautious not to withdraw too much too quickly, which could deplete your savings prematurely.

Pensions can also be a tax-efficient way to reduce Inheritance Tax, as they can be passed on tax-free.

Start planning today

Many people delay retirement planning until it’s almost too late. When you are living a busy life, it can be difficult to find time to consider your long-term retirement plan. Your mortgage, children or career might be more of an immediate priority. However, getting your pension on track as soon as possible could save you and your family a financial headache later on.

Regardless of your age, professional financial advice can help you achieve your retirement goals.

Please get in touch with the friendly team at George Square for a financial planning review.

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