A plain-English guide to working out whether your pensions, savings and income can support the life you want.
Introduction
Retirement is one of the biggest financial decisions most people make. The question is rarely just ‘how much have I got?’ A better question is: can my money support the life I want, for as long as I need it to, without taking more risk than I am comfortable with?
For some people, retirement means stopping work completely. For others, it means reducing hours, changing career, helping family, travelling more or creating a slower pace of life. The right retirement plan starts with the lifestyle, not the pension balance.
Start with the life you want
Before looking at pension statements, think about what retirement should actually look like.
Where will you live? Will the mortgage be repaid?
How often do you want to travel?
Will you help children or grandchildren?
Do you want to keep working part time?
This gives you a target. Without a target, it is easy to either underspend through fear or overspend without realising the long-term impact.
Understand your retirement income sources
Most retirement plans are built from several sources: workplace pensions, personal pensions, State Pension, ISAs, cash savings, rental income, business sale proceeds, part-time earnings or other investments. The order and timing matter. Taking money from the wrong place at the wrong time can affect tax, investment growth, future flexibility and inheritance planning. A retirement plan should show how these income sources work together.
Use cashflow modelling to test scenarios
Cashflow modelling helps turn pension values and assumptions into a visual lifetime plan. It can show whether you appear on track, what happens if markets fall, how retiring earlier might affect you, and how much income may be sustainable.
Abram Partnership’s retirement planning service uses cashflow modelling to help clients understand the standard of living they may be able to have in retirement. You can read more here: Retirement planning at Abram Partnership.
The risks to check before retiring
Retirement planning is not just about reaching a number. You also need to think about inflation, investment performance, tax, longevity, care costs, emergency spending, supporting family and what happens if one partner dies first. If you use pension drawdown, your pension remains invested and income is not guaranteed. If markets fall or withdrawals are too high, the fund could run down faster than expected. If you buy an annuity, income may be more secure, but flexibility may be lower. The right approach depends on your circumstances.
Five questions to ask before you retire
1. How much do I actually spend each month now, and how will that change?
2. What guaranteed income will I have, including State Pension and any defined benefit pensions?
3. How much flexible income do I need from pensions, ISAs or investments? 4
. What tax will I pay if I take pension income or tax-free cash?
5. What would happen to my plan if markets fell, inflation stayed high, or I lived longer than expected?
How financial advice can help
A good adviser does not just tell you whether a pension is ‘good’ or ‘bad’. They help you connect your money to your life. That can include pension consolidation, retirement income planning, investment risk review, tax planning, death benefits, protection and cashflow modelling. Chris Hopkins DipPFS is an Independent Financial Adviser based in Aberdare, working with clients face to face where suitable and remotely across the UK. Learn more about Chris: Chris Hopkins profile.
Frequently asked questions
Q: How much do I need to retire? A: There is no single number. It depends on spending, debts, lifestyle,
health, pension types, investment risk, tax and whether you want to leave money behind.
Q: Can I retire before State Pension age? A: Possibly, but you may need a bridge from private pensions,
ISAs, savings or part-time work until State Pension starts.
Q: Is taking tax-free cash always a good idea? A: Not always. It can be useful, but taking it too early or
without a plan may reduce future income or affect tax planning.
If you are asking “Can I afford to retire?“, book a retirement planning conversation. We can help you understand your pensions, likely income, risks and options before you make a major decision. Contact Abram Partnership.
You can book an Book an initial conversation here to start your journey to answer “Can I Afford to Retire”
Compliance / risk note
Important information: This article is for general information only and is not personal financial advice. Pension and investment planning should be based on your own circumstances, objectives and attitude to risk. The value of investments can fall as well as rise and you may get back less than you invest. Tax treatment depends on individual circumstances and may change. Abram Partnership Limited is an appointed representative of Sense Network Ltd which is authorised and regulated by the Financial Conduct Authority. Registered address: Berkeley House, 41 Avonridge, Thornhill, Cardiff, CF14 9AU. Telephone: 029 2069 3700. Email: enquiries@cardiffifa.co.uk.