Effective retirement planning relies on understanding your financial goals

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Could you hit the bull’s-eye on a dartboard? Maybe not, but I’m guessing you’d know where to aim. And that’s the problem when it comes to retirement planning. There are too many people who simply don’t know what they’re aiming for. 

Don’t get me wrong, I’m not suggesting you’ve got to sign up to your local darts team if you want to get your retirement plans on track. Instead I’m encouraging you to take some time to think about what you want in later life; how much it’ll cost; and how you’ll pay for it.

Because only once you’ve answered these questions can you can start to create an effective financial strategy for your future. 

What does your retirement look like?

When you think about your retirement you’ve probably got some general notions of spending more time on your hobbies and maybe travelling to places you’ve always wanted to visit.

But to start planning properly for retirement you need to put some more flesh on the bones and really think about the sorts of things you want to do. How often would you like to get away each year? How long would you go for? Where would you go?

If you’re a member of a golf, squash or tennis club will you keep up your membership and maybe look to join other clubs or societies?

Do you like eating out or going to the theatre and how often would you hope to do these sorts of things in retirement? 

Work out what your retirement will cost

Once you’ve taken a bit of time to really imagine what sort of lifestyle you’d like when you stop working, the next thing is to think about how much it’ll cost.

The first place to start is with your basic fixed costs like food, clothing, transport and household bills. When you’ve worked these out you can then move on to the more enjoyable items on your lifestyle list.

Doing the sums might seem like a bit of a chore, but we’ve developed Your Retirement Planner to help. On the site our Retirement Needs Calculator lets you budget for the essentials, the desirables and the luxuries of later life so you can see how much you’ll need on an annual basis. Please note that to use our Retirement Needs Planner; you need to accept the terms of service for access and usage at the bottom of the page.   

Turning your pension pot into a retirement income 

But knowing the annual cost of your lifestyle in retirement is only part of the equation. You’ll also have to determine how big your pension pot has to be to actually generate that level of annual retirement income.

Your Retirement Planner has another online calculator – Retirement Income Planner - that lets you do exactly this. Similar to the Retirement Needs Planner, you need to accept the terms of service for access and usage at the bottom of the page to use the Retirement Income Planner. The new pension freedoms mean you’ve got more options when it comes to how you create a retirement income. Our calculator will explain all of the choices and let you estimate the retirement income that each option could generate depending on the size of your pension pot.    

And once you know how much your retirement income will cost, you can then calculate the total monthly pension contributions you need to make to reach your target.

Using the Retirement Income Planner you can see how monthly pension contributions add up over the course of your working life, making it simple to set them at the correct level to attain your financial goals. 

The simple truth is that unless you know what you’re aiming for then making sure your retirement plans are on target is little more than a lottery. You wouldn’t wear a blindfold if you wanted to hit the bull’s-eye, so why fly blind when it comes to safeguarding your financial future?

If you need help getting started, have a look at our range of online tools and guidance