How a financial planner can ensure the retirement lifestyle you want

25/11/2022

An article by PensionsAge makes for sobering reading. It reveals research by pension provider Phoenix Group that found 86% of those contributing into a defined contribution (DC) scheme are not on track to achieve the lifestyle they will want when they stop working.

It’s a startling statistic, and one that dovetails into a study by Royal London, which was featured in a MoneyAge article. It shows that 40% of workers have little or no idea how much money they need to save for retirement, with 37% saying that they were “not confident” they were putting enough aside for their retirement.

As a client of Douglas White, you know that we work closely with you to help ensure your pension allows you to live the retirement you want. If you are not a client and want to discover how we do this, read on to find out about three important ways we achieve it. 

Before you do, let’s consider what having enough for retirement might mean for you.

Retirement means different things to different people

In reality, “having enough” in retirement is different for everyone, as we all have different ideas about how the ideal retirement looks. For example, if you want to spend most of your time at home with one holiday a year, you’re likely to need significantly less money than someone who wants three holidays a year and a luxury lifestyle.

An article by FTAdviser in August 2022 reported research that revealed an “average retiree” needs an annual income of £21,000 to maintain a comfortable lifestyle after 2022’s soaring inflation.

This, according to these figures, would require a pension pot valued at £420,000, assuming an annual growth rate of 5% and 0.5% in fees. If, on the other hand, you want a “luxurious lifestyle”, the research suggests you would need an income of £34,000 a year. 

To achieve this, your pension pot would need to be £680,000 – that’s £260,000 more than someone wanting an “average” lifestyle! As you can see, understanding whether your pension is on track to provide you with your retirement lifestyle is vital.

Let’s now look at how working with Douglas White provides the certainty that you’re on track to enjoy the retirement you dream of.

1. Use cashflow modelling to keep your pension on track

Cashflow forecasting software accurately models your spending requirements throughout your retirement based on the lifestyle you want. Furthermore, it factors in the rising cost of living to provide a clear understanding of how large your pension pot needs to be to support your desired lifestyle without any risk of it running out. 

This is at the heart of an effective retirement strategy, as it allows you to see whether your pension pot is already large enough to provide the standard of living you want. If it’s not, we can confirm whether or not it is on track to do so, or whether you need to take action to boost your pension pot’s value.

There is good news here. Because pension contributions receive tax relief, you could significantly boost the value of your pension pot relatively quickly.

To demonstrate this, you might want to consider the following. Every £100 you contribute would actually cost you £80 if you are a basic-rate taxpayer, and as a higher-rate taxpayer, it will cost just £60. Additional-rate taxpayers may only pay £55 for every £100 contributed.

Please note, the 40% and 45% rates of tax relief are only provided on contributions made to your pension that come from the proportion of your earnings that exceed the higher- and additional-rate Income Tax thresholds.

As the government tops up your contributions to make £100, the more you place into your pension the more it receives from HM Revenue & Customs. As such, your pension might be able to fund the lifestyle you want more quickly than you think.

2. Future-proof your pension against economic uncertainty

A pension is a long-term investment that could run for 30 years or more, depending on how old you were when you started it. When you retire, it then has to provide an income for potentially the same length of time, while still growing at a rate that means it lasts as long as you do.

That’s why it is essential to use investments and investment models that have taken economic downturns and stock market volatility into account. While we do not know when market downturns and economic volatility will happen in the future, we know that they will.

This is why we carefully select pension portfolios and use financial models that assume short-term downturns as part of its long-term results. As such, the growth of your pension and income it will provide are more likely to meet your retirement goals, and provide the lifestyle you want.

3. Assess your pension’s level of risk

While too much risk could put your entire pension pot in jeopardy, so could too little. This is because most pensions are investments, and include assets such as government bonds, stocks and shares, cash, and even property.

As growth within the pension typically comes from the higher-risk assets like stocks and shares, not having enough risk could reduce its long-term growth potential. As a result, it may not grow to the value needed for you to achieve your retirement goals.

At Douglas White, we ensure the level of risk your pension is exposed to is right for you and your ambitions. This makes sure your pension pot is working as hard as possible while remaining at a level of risk that is in line with your circumstances.

Work with us

If you’d like to discuss your pension and retirement plans, or know anyone who might benefit from working with us, please get in touch at info@douglaswhiteltd.com or call 0151 345 6828 to speak to us today.

Please note

This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. 

The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.