12/02/18Four things to help you feel more financially secure when you retire
Unsure about your financial stability in retirement? You’re not alone.
Just under half (46%) of people due to retire in 2018 feel that they are financially underprepared for retirement, according to Prudential. That is despite the average income for people retiring in 2018 reaching a 10-year high of £19,900, after rising continually for the past five years and surpassing the 2008 high of £18,700.
Usually, news that the average retirement income has risen would be met with sighs of relief and an overall feeling of heightened financial security. However, only half of those due to retire this year believe that they will be able to live a comfortable lifestyle on their expected retirement income. Meanwhile, 27% do not believe that they have enough money to support their retirement.
There are four key factors which contribute to the feeling of financial stability:
1. Knowing what you have
Without understanding what your pension can do for you when you retire, there is no real way to know whether it will provide an income which will support the lifestyle you want to lead. To fully know how you will fare when you stop working, you need to know how much you will be able to access and what level of income you will be able to draw.
2. Knowing what you want
Before you know whether your income will support your ideal retirement, you need to think about what that lifestyle involves. If you are planning to enjoy the finer things in life, you will need a substantially higher income than someone who simply wants to spend more time at home or in the garden.
3. Knowing how long you need to plan for
No one likes to think about how long they will live, but research from Retirement Advantage has shown that almost four out of five over-50s (78%) underestimate their life expectancy. Of those:
- Men believe they will live six years less than average
- Women state their life expectancy at eight years below average
Planning for a shorter retirement than you will have could mean that you spend all your money too soon, leaving very little to live on. Of course, the State pension will still be there in the unlikely event that your personal pension pots run dry, but you might find yourself facing a shocking drop in income if that happens.
4.Knowing how to plan efficiently
With so many rules and regulations, it can be hard to know exactly what you can and can’t do with your pension. You may have some idea about how to access your pension and even how Pension Freedoms can help you to better plan your finances for later life. But, unless you are completely up to speed with legislation and government plans, you could run into issues if you try to do it yourself.
The good news is that all these issues can be solved through financial planning.
A financial planner will help you understand exactly what you want from retirement; you might be surprised by what you want! Then, they will analyse your existing pensions, including your State Pension and project your future income; showing you what you can afford to spend in the short, medium and long term.
Many people underestimate how long they will live. Financial planning will help you understand what you can afford to spend now without running out of money in later years. Conversely, it may also give you the confidence that you can afford to spend money i.e. if you don’t know what you have, you might be scared to spend it thinking you will run out of cash.
As well as helping you to understand your financial future and give you a better sense of financial stability, research has shown that financial planning can also help you to increase the income you will have when you retire.
The study, from Unbiased, has shown that people who seek financial advice could benefit from an additional £98 in savings each month, which enables them to receive an extra £3,654 in annual retirement income during later life.
Want to find out more about financial planning and your retirement income? Get in touch.