Set a clear retirement income goal
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Setting a retirement-income goal is a crucial first step in the pension planning process. It gives you something to work towards and helps you figure out how much you’ll need to save now to live comfortably when you stop working.
Be clear about the money you’ll need
Don’t be daunted by the idea of working out your retirement financial needs. Setting a clear target doesn’t mean setting anything in stone. You just need a ballpark figure as a starting point for your pension planning – you can always tweak it later as you learn more or if your circumstances change.
State your goal clearly and directly as the monthly income you think you’ll need when you retire. You can express it either as a sum of money or as a proportion of your salary.
To give you an idea, many of the most generous pension schemes aim to provide a retirement income of two thirds of salary. Others aim lower – around half of salary. So using between half and two thirds of your current salary is a useful rule of thumb when planning for your retirement income needs.
Another way of arriving at a monthly target is to estimate your outgoings in retirement. If you do this, remember that people often find their expenses fall once their working life ends, for example because mortgages or other debts have been paid off. But don’t automatically assume that all your expenses will go down. Some may increase – for example, heating and leisure costs.
Once you’ve decided on a target retirement income, write it down.
Your next step
The next step in the planning process will be to review your existing pension savings to see whether you’re on track to achieve your goal.