Your retirement years should be something that you look forward to. It’s a time when you won’t be working and will have the opportunity to tackle your bucket list and do things you didn’t have time to do when you were at work.
It’s also important that you enter your retirement years without any financial concerns.
However, a February 2025 report from Which? revealed that half of people over the age of 55 are worried about running out of money in their retirement, with only 27% of those surveyed saying they have no concerns.
The fear of outliving your retirement savings is an understandable one. That’s why it’s important to take all the possible steps you can while you are still working and, importantly, setting money aside from your income, to prevent that from happening.
Determining exactly how much you need to save for retirement can be challenging. Different lifestyles will have varying costs, so it’s important to plan ahead and ensure you will be able to afford to do what you have in mind.
It’s also important to appreciate that you won’t have the regular income each month that you’ve been used to during your working life.
You’ll be relying on your accumulated pension fund and other assets that you will start drawing from.
In this article, you can read about some simple measures you can take to help you plan ahead so you can enter your retirement with as few money worries as possible.
Don’t stop planning once you reach retirement
Your perception may be that your retirement planning can stop as soon as you finish working. However, in reality, this is far from being the case.
In fact, planning becomes all the more important, because you will need to balance the obvious need not to run out of money, with drawing enough income from your pension fund and other assets to ensure you can live comfortably.
You may feel inhibited when it comes to providing yourself with an income. This is understandable, as the knowledge that you may not have a regular salary coming in will, at least initially, be at the forefront of your mind.
In our experience, many clients find it difficult to get away from a “saver” mindset, which can prevent them from fully enjoying their retirement.
This highlights the importance of planning ahead, so you feel comfortable that you have a robust income plan ready for when you do finally retire.
Use cashflow forecasting to help you plan ahead
Perhaps the most important part of your planning process will be to use cashflow forecasting to help you model your financial future into retirement.
It involves using sophisticated software to give you an overview of your current and projected assets, and what this may mean when it comes to drawing income from your pension fund, and other accrued assets.
This is done by inputting full details of your finances into the software. These details will include:
- Your current and projected future income
- Your outgoings now and in the future
- The value of all your assets, including property, investments, pensions, and savings
- A summary of your current and future liabilities, such as your mortgage.
It’s sensible to start this process prior to your retirement, as one of the important decisions it can help you make is when to actually retire.
A financial planner can then use the data produced by the cashflow forecasting software to see if there are any “red flags” in terms of your current financial position. For example, it could reveal that you need to consider saving more in the years before you retire in order to boost your final fund.
Alternatively, it may actually reveal that you can retire comfortably sooner than you had expected.
Find out more
4 key benefits of cashflow forecasting
The 4 stages of your life where cashflow forecasting could be invaluable
Cashflow forecasting can help you answer “what if” questions
As well as looking at your existing position and how your finances may look when you come to retire, cashflow forecasting can be most helpful when it comes to modelling different scenarios by changing the assumptions of future variables.
These can relate to economic events, such as:
- How will my finances be affected by a period of high inflation?
- What would happen if there were a market downturn?
You can also use cashflow forecasting to provide you with insight into how various personal decisions could affect your finances. These could include:
- What if I were to stop work now?
- Can I afford to help my children get on the housing ladder?
- What will happen if I retire in Australia?
As well as working out how certain events could affect you, cashflow forecasting can also help you adjust your plans to mitigate the effect on your income and future lifestyle.
Your investment strategy will remain important
Retirements are getting longer. According the Office for National Statistics, the average life expectancy of a 65-year-old now is in the 80s for both men and women. This means that you could spend twenty years or more in retirement.
Continuing to invest your assets during this time can help you to continue to grow your wealth. As a result, this can reduce the chances of running out of money.
It’s sensible to factor your income needs into your investment strategy, and ensure that any market turmoil does not have a detrimental effect on the amount of income you can comfortably draw.
You may want to consider using some of your pension fund to provide you with an annuity. Recent research carried out by the Just Group has revealed that rates are now at a 15-year high, so now could be a good time to consider this option. This will guarantee an income for you for life, while allowing you to continue to invest the remainder of your fund to provide additional income.
It’s important to choose investments that match how much risk you’re comfortable with. You should also review your investment strategy regularly to ensure you stay on track.
Find out more
Is it time to rethink annuities when you’re planning your retirement income?
Your income needs are likely to change throughout your retirement
Assuming that you will need the same amount of money every year throughout your retirement probably isn’t the best approach.
Instead, you may want to think about segmenting your retirement into three phases, during which your income requirements may vary.
- The initial period after you retire, when you are still active and keen to travel and, as a result, likely to be spending a lot of money.
- A quieter period when you are slowing down and your outgoings reduce, although you may still be looking for the occasional expensive holiday.
- Your final years, in which costs may increase, especially if care provision becomes an issue.
Furthermore, while your income requirements may change through your retirement, you should also be aware that inflation will always mean your household costs will increase year-on-year. So, it’s prudent to factor this into your planning.
Get in touch
If you would like to talk about your retirement plans, please get in touch with us.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only, it does not take into account your personal objectives, financial situation, or needs.
Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC legislation, which is subject to change.