The importance of having a plan for the years after you stop working might seem obvious at first. After all, nobody wants to end up feeling lost and directionless in retirement – but the behaviour of many people suggests that is not the case. They simply do not give that much thought to what they will do (and how they will fund it) when their leisure time is at a premium.
A lot of that is down to the fact that retirement can feel very distant. Planning the next stage on your career journey seems a lot more compelling than thinking about your twilight years well in the future. However, people are living longer now and thus have lengthier retirements, which means that working out a plan and saving for those years really is of pressing importance.
Read on to learn the key reasons why you need to start making up a retirement plan now.
Retirement is expensive
The amount of money that is needed per year if you want to enjoy a comfortable and fulfilling retirement is a lot more than the UK state pension provides. The annual income needed post-retirement for a single person to be able to meet minimum living standards is just under £13,000. If you have a spouse, the figure rises to nearly £20,000 per year. Minimum living standards mean that paying for bills, food etc is covered and there is still money left for enjoying life.
Of course, that retirement income requirement rises if you want a lifestyle above the minimum standard and the current full UK state pension adds up to £9,627 per year. As you can see, there is a real gap even for those aiming only for minimum post-retirement living standards.
That means saving towards your retirement is an absolute essential for most people.
Planning can clarify your goals
The very first step that you will take alongside your retirement planning specialists in Chester or elsewhere is to work out what your dreams are. Your advisor will ask you to think long and hard about exactly what you want from your life after you leave the working world behind. That will help to determine whether you are looking at a minimum, moderate or comfortable lifestyle and – from that – the sort of income that will be needed.
Some people prefer to keep working part-time, while others want to stop completely. Moving abroad may be the dream, or a quiet retirement to the country might be more your style. Proper retirement planning is a matter of figuring out what you want and then developing a varied and balanced portfolio of savings and investments that will make it possible. In turn, planning will make retirement seem real for you by giving you something to look forward to in the years to come.
Planning can improve your peace of mind
Making concrete plans for the future is a way of reducing the amount of uncertainty you face. This can have a big impact on your overall peace of mind. Worries about money and the future are a major stressor for well over half of all adults, according to research that has been conducted into the subject. Making a detailed plan and starting to save towards your retirement now will help to get rid of a big part of that stress and enable you to feel like you are in control of your future rather than at the mercy of events.
That is important to your health in more than one way. Stress and worry affect your mental health but can also produce a range of physical side effects. Sleep problems, heart disease and diabetes are just some of the conditions that have been linked to stress. Therefore, any steps that you can take to minimise the amount of financial strain that there is in your life will be well worth it.
Preparing for tomorrow will help you live a healthy life today.
You do not know what is around the corner
None of us know what is going to happen to us or our loved ones in the future, but starting to plan for your retirement can help with unforeseen events. By the time retirement rolls around, you will be considerably older and that can mean that you face more medical issues than you did when you were younger. There is nothing that anyone can do about that, apart from staying as fit as possible, but retirement planning can help in other ways.
Serious illness can mean heavy medical bills and you will no longer have a regular income from work to fall back on. Planning and saving for retirement early will give you a nest egg to compensate for that and to help cover any treatment costs. Meanwhile, ongoing income streams from investments can ensure that you are not left with nothing after paying them.
It is not just health issues, though. It could be damage to the home or other unexpected events. The point is to be able to cope financially should something happen after your retirement.
You can earn compounding returns
Compounding returns is a term that refers to the financial growth of investments over a particular period. Starting to save into a private pension towards your retirement as soon as possible will maximise the amount of these compounding returns that you can earn on it between now and the end of your working life.
A financial advisor will usually encourage you to invest in ways that can grow your income each year. To provide an example: if you invest £100 in a way that offers compound return growth of 5%, it will leave you with £105 by the end of that year. That same situation will then apply the following year, but starting from £105, which means that the compounding return will be a bit higher the second year too. It is a way of increasing the earnings towards your retirement from a single pension and can be extremely lucrative when viewed over a period of many years.
You may be able to retire earlier
It stands to reason that starting to plan and save for your retirement now could allow you to stop working a lot sooner. For many people, the main thing that will keep them working is the simple fact that they do not have enough put aside or any guaranteed alternative income streams to fall back on if they give up their jobs. A combination of savings and good investments will ensure that this does not apply to you.
Even if you enjoy your job, you will reach a point where easing off and spending more time with your family becomes a greater priority to you. That might be because you or your spouse is suffering from health issues that make transitioning to a less stressful life a necessary step, or it could just be because you have worked hard for years and want to rebalance your life. Retirement planning is what will make that possible, if and when the time comes.
You can map out your career more clearly
Planning for retirement at an early stage can benefit you not just when you stop working but also during your actual career. That is because it will help to give you a better grasp of the long-term picture and stop you making rash short-term decisions. At certain points, you could be faced with key questions about your future, such as whether to stay working for your current firm or strike out alone; whether to retrain and start again in an entirely new field and how you should finance the educational future for your children.
Starting to save as soon as possible will give you more financial options when it comes to considering the future for yourself and your family. It will also help you to plan out a career strategy because you will have a better idea of when you are likely to stop working and begin your life of leisure.
You can reduce the risk of marital problems
You may not be married or even thinking about it at the moment, but that is likely to change at some point down the line. When it does you will want to do everything possible to minimise the strains on your marriage and reduce the risk of a divorce and retirement planning is one way to achieve that. This is because money worries are widely recognised as being one of the biggest causes of problems within marriages.
From debt issues to differing priorities when it comes to money and struggling to agree on a financial goal for the future, there are many ways that this can manifest. If you are already married, your plan for retirement can be worked out alongside your spouse so that you are both completely happy with it. If not, you can always adjust the plan when you do get married after discussing it with your partner and financial advisor.
Having a plan in place for your shared future as you grow old will take away one of the major marital stress factors and the fact that you are saving towards the future will also alleviate any worries about debts. That is because you will have a nest egg to fall back on if something happens that sets you back financially.
You will not be a burden
Finally, preparing for old age means that the cost of your care will be covered and that will reduce the financial pressures on your children.
As you can see, retirement planning is very important. Contact a wealth manager today to get started.
