Most of us would like to retire early, however, in reality it can be a scary prospect that raises more questions than answers. How much money will I have? How much will I need? And for how long? What will I do when I no longer go to work?

As few of us know how long we are likely to live this is difficult to plan. A recent study* shows that most men can expect to live past their retirement savings by nearly a decade and women can expect to live two years longer. To avoid running out of money, you’ll need to ensure you set a reasonable retirement income target for yourself, stick to your spending limits and regularly review your pension(s) to be able to pay for the essentials such as your home, food and bills for the rest of your life.

By having a mixture of income that is secured or unsecured you can have the certainty of a guaranteed minimum income and the flexibility of a pot of money to draw upon for discretionary expenditure. Everyone’s circumstances are different and you should always seek financial advice when planning your retirement - there is no harm in starting to think about your options early, both financially and for your lifestyle.


An income that is secure.

Secure income is any regular income you can rely on for the rest of your life. You will probably already have some secure income in retirement, for example, your State Pension is guaranteed (although the age at which you are entitled is getting later). You may also be due a retirement income from a former employer if you were in a salary-related or defined benefit pension such as a final salary or career average pension scheme which can provide you with a regular income for life.

You may have contributed to an employer or private pension scheme where you built up your own pension pot. If you need to top-up your secure income, you could use some of this pot to buy a lifetime annuity - this is an insurance policy that in return for a lump sum guarantees to pay you a regular income for life. You can also arrange for this income to increase over time so that its value is not eroded by inflation. This income is secure so there is no danger of it running out.


Flexible income.

If you have enough secure income in retirement you could leave your pension pot invested and take a flexible income or lump sums from it as and when you choose. Your pension pot has the opportunity to grow but there is also a risk that your investments could fall. If you rely on this to provide you with an income, you may have to reduce the amount you take if your pot falls in value - or risk your money running out. The same applies for any other savings or investments you may have. You can take a flexible income from these but you need to monitor how much you take to make sure they last.

If you are unsure that your retirement funds will be sufficient to see you through your later years please contact one of our independent financial advisers.



*World Economic Forum

This article is not intended to be specific financial advice and you should always seek independent financial advice tailored to your circumstances.
 

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