What does being ‘on track’ for retirement actually mean? Well, we’re all getting older. So we’re inexorably getting nearer to when we retire, whether we like it or not. In that sense we’re all on track (if not already retired). But to most people, being on track means more. It means getting our finances in order so we can afford to enjoy our retirement to the full.
Ways of feeling on track
Different people might feel that they’re on track in different ways. For example:
- Set a target retirement income. As long as you’re on course to achieve this retirement income, then you’re on track.
- Plan on having plenty of savings to draw down on during the early years of retirement, but rely on the state pension in later years.
- Entirely eliminate the risk of running out of money during retirement. This might involve cutting out all luxuries and/or working till you drop.
On track to sustainability
None of the above ways of thinking are particularly helpful. It may be easy to think in terms of aiming for a percentage of your working income, but the approach has flaws. Assuming you won’t need to spend much when you’re older is far too dangerous. And seeking to eliminate all risk is achievable by very few, and may still disappoint in terms of your standard of living.
Really being on track means balancing present spending needs with future spending needs. Income comes into play only to fund spending, not as an end in itself. Forget living frugally now in the hope of funding a lavish retirement. Equally, forget over-spending in the hope that ‘tomorrow never comes’. But don’t forget keeping an eye on the legacy you hope to leave (if any).
The balancing trick
But this type of balancing is much harder. There are so many decisions that could affect the outcome, such as:
- When to retire
- How much to spend
- How much to contribute to a pension scheme
- Where to invest savings
- Whether to plan for drawdown or annuities
Quite apart form decisions that are under your control, there are many things that aren’t, such as:
- How long you’ll live
- How well your investments perform
The reason we decided to create our own retirement calculator was that there was (and is) nothing else available that ticked all the boxes. Most retirement calculators ignore uncertainty, and assume that everything is predictable. Most also ignore taxation. And most offer no help in getting on track, merely warning you if you’re off course.
In creating EvolveMyRetirement®, we wanted to make a tool that we’d want to use ourselves. It had to meet our own personal needs. If it couldn’t even help put our own finances on track, we certainly shouldn’t provide it to others. Having achieved al least that, we sought feedback from our users, including from financial advisers. Over time we’ve steadily improved our app, so that now anyone can get on track.