For many of us, retirement planning seems too far off to start worrying about. Or maybe it seems so imminent that we panic. Leaving retirement planning till just before we retire is asking for trouble. Every decade of our adult lives presents unique challenges. So we need to adapt our retirement planning accordingly. Let’s take a look.
20s to 30s: Getting started
This is the time when you need to learn how to budget. That’s easier for some people than for others. You should avoid taking out high-interest debt to pander to instant gratification, as there’s sure to be financial pain later.
Do you have a student loan and are you tempted to start repaying it early? Before you do, read Martin Lewis’s excellent analysis. In many cases early repayment would be a bad choice.
What about retirement planning? Although it seems a long way off, the decisions you make now could make a big difference to your standard of living in retirement. It may be too early to plan the rest of your life with any accuracy. But you should at least set yourself some goals and understand your attitudes.
If your employer offers increased pension contributions to match yours, then maximise your contributions. If you don’t, you’re turning away free money from your employer. And there’s more free money from the taxman in terms of tax relief on your contributions. You shouldn’t be afraid of investing your pension savings into the stockmarket. At your age long-term growth is far more important than short-term volatility.
30s to 40s: Solid foundations
By now you’ll be well into your chosen career. This is the period when you’ll likely be able to get a mortgage and buy your own home. You may also be raising a family with all the associated financial costs. So you may feel you don’t have enough cash for serious retirement planning.
But this could be short-sighted. Financial decisions you make in your 30s and 40s may well have a bigger effect on your retirement finances than later decisions. You should certainly maximise any ‘free money’ you get from your employer’s pension contributions by contributing more yourself.
40s to 50s: Career at its peak
By now you’ll be realising that retirement is on the horizon. Hopefully you’ll have already started your planning. But in any case you’ll probably realise that you need to be taking action.
One thing to be wary of is lifestyle creep. Your income from your work will hopefully rise considerably faster than inflation. It’s tempting to spend every penny of your pay rises. Unfortunately that will lead to a cliff-edge drop in your standard of living at retirement. If your savings rate is only based on your starting salary, then so will your retirement income. Instead, you should periodically reassess your spending versus your savings rate.
If you have dependants, make sure you have adequate life insurance.
50s to 60s: Approaching retirement
If you haven’t started any retirement planning by now, then you may feel it’s too late. But if you’re a natural saver then you may have built a sizeable nest-egg without trying. If not, then you’ll need to save aggressively, and maybe plan to retire a bit later than you might have hoped.
On the other hand there may still be family commitments that could drain your finances, unless you’re careful. If you don’t start budgeting now, you never will.
Depending on your risk tolerance, it may be a good idea to start rebalancing at least some of your investments into less risky assets. Removing all risk will remove growth, which may put your future at risk. Planning your present and future exposure to financial risk is very important. One other thing that could affect your retirement planning is how much you hope to leave to your heirs.
60s to 70s: Transition into retirement
Unless you’re wealthy enough to have been able to afford to early retirement in your 40s or 50s, this is when you’ll actually make the transition into retirement.
Now more than ever you need to budget carefully. You want to avoid the dreaded retirement cliff-edge. So your discretionary spending needs to be sustainable both before and after the transition.
Once again, you need to carefully plan your exposure to financial risk. Too much risk could expose you to a market correction just after retirement. Too little risk could mean your investments won’t be able to grow enough to support a (hopefully) long life.
70s to 80s and beyond
Retirement planning doesn’t end on the day you retire. Although you’ll have needed to make many important decisions before you retire, there are many more you’ll need to make afterwards.
These could potentially include:
- Keeping expenses under control.
- Adjusting discretionary spending.
- Adjusting investment risk.
- Reassessing your legacy plans.
- Revising the appropriate level of pension drawdown.
- Buying an annuity at some point to reduce risk.
Retirement planning guidance
There are so many variables to consider that most of us will need help from a professional financial planner. But you can get a head start from the comfort of your home. The EvolveMyRetirement® Intelligent Retirement Calculator was especially designed for retirement planning at any stage of life.