Your retirement should be a time when you sit back, relax and enjoy the fruits of your chosen career. However, running out of money in your 80s or 90s isn’t something anyone wants to think about.
Neither is having to drastically cut back on the things you enjoy because your funds are running low.
So, the challenge isn’t just having enough money to retire. It’s about making sure your retirement savings can sustain the lifestyle you want for what could be several decades without a regular salary.
The good news is that with proper planning, you can protect your lifestyle throughout your retirement years. It requires thinking ahead, making informed decisions, and regularly reviewing your approach as circumstances change.
This blog explores the practical steps you can take to build a retirement plan that supports your lifestyle for the long term, from the early stages of saving through to managing your money once you’ve stopped working.
How long might your retirement be?
Your retirement could easily last 30 years or more, which is longer than many people spend in their careers. With life expectancy in the UK continuing to rise, if you retired today at 65, you could reasonably expect to live into your mid-80s or beyond. This is a dramatic shift from previous generations. Your grandparents might have enjoyed 10-15 years of retirement. You could easily face 30-40 years.
Think about what that means financially. If you retire at 65 with a pension pot of £300,000, that money would need to provide income until you’re 95 or older. It would need to cover not just your day-to-day living costs, but also rising healthcare expenses, potential care needs and the effects of inflation over three decades. A retirement that starts with comfortable finances can become precarious if you haven’t planned for this extended timeframe.
Your early retirement years might involve travel and active hobbies, but later years could bring health or mobility challenges, medical expenses or the need for care. So, planning for a longer retirement means ensuring your money can sustain your lifestyle through all these different phases, not just the first few years after you stop working.
Building your retirement foundations
Protecting your lifestyle in retirement starts long before you actually retire. The earlier you begin saving, the more time your money has to grow.
For example, if you start contributing to a pension at 25, you’ll accumulate significantly more than someone who starts at 40, even if you both save the same amount each month. That’s the power of compound growth working over time.
Many Leicester residents juggle competing priorities during their working years. Mortgages, children’s expenses and immediate living costs can make retirement feel like a distant concern. But even modest pension contributions during these busy years can make a substantial difference later.
ISAs provide another tax-efficient way to save. While pensions are designed specifically for retirement, ISAs offer flexibility. You can access the money earlier if needed, and any growth or income is tax-free. Many people use ISAs alongside their pensions to create a more flexible retirement fund.
The key is finding a balance. You don’t need to sacrifice your current lifestyle completely. But regularly setting aside something for retirement, even small amounts, will help you build the foundation for financial security in later life.
Understanding pensions
Not all pensions work the same way, which can make planning for a comfortable retirement more complex.
Defined-benefit pensions, often called final salary schemes, provide a guaranteed income based on your salary and years of service. If you have one of these, you’re fortunate. They offer certainty that’s increasingly rare.
Most people now have defined-contribution pensions, where you and your employer pay into a pot that’s invested. Your eventual income will depend on how much you’ve contributed, how those investments perform and how you choose to take your money.
When you reach retirement age, you’ll face important decisions about accessing your pension. You can typically take 25% as a tax-free lump sum. The rest can be converted into income through different routes.
An annuity provides guaranteed income for life. You exchange your pension pot for regular payments that continue no matter how long you live. The certainty is appealing, but once you’ve bought an annuity, you can’t change your mind.
Pension drawdown keeps your money invested while you withdraw income as needed. This offers flexibility and the potential for continued growth, but your income isn’t guaranteed, and you’ll need to manage the risk of running out of money.
Many people use a combination, perhaps buying a small annuity to cover their essential expenses while keeping the rest in drawdown for flexibility.
These decisions are complex. Making the right choice will depend on your individual circumstances, health, other sources of income and attitude to risk, which is why you should always talk things through with your financial adviser before deciding what to do.
Other investments
Your investment strategy shouldn’t stop when you retire. In fact, it becomes more important than ever. With potentially 30 years of retirement ahead, your pension pot needs to keep growing to maintain its purchasing power.
Holding everything in cash might feel safe, but inflation will steadily erode its value.
Your approach to investment risk should evolve throughout your working life and into retirement. In your 20s and 30s, you can afford to take more risk because you have time to recover from market downturns. As you approach retirement, gradually reducing your risk will help protect what you’ve built.
Inflation is one of the biggest threats to retirement income. Just 2% inflation can halve your purchasing power over 35 years, so your investment strategy needs to target growth that at least matches inflation, otherwise you’ll effectively get poorer each year.
Your financial adviser can help you balance the need for growth against protecting your capital, adjusting your strategy as you move through the different stages of your retirement.
They can also help you avoid common mistakes, like panicking during a market downturn or taking too much income too quickly.
Planning for your lifestyle needs
Your spending patterns in retirement won’t remain constant over time.
Many people find they spend more in their first few years of retirement. You’re active, healthy and finally have time to travel, pursue hobbies or take on the projects you’ve been putting off.
As you move into your 70s and 80s, your spending will probably decrease. You might travel less, be more settled in your routines and have fewer expensive hobbies.
However, you might also have to factor in other expenses, like care costs. You might also like to help your children or grandchildren with house deposits, university costs or simply provide some financial security. Building this into your retirement plan will ensure you can support your family while maintaining your own lifestyle.
Understanding your changing needs will help you create a more realistic retirement budget and ensure you’re not caught short when your expenses increase later in life.
How can BDWM help?
Retirement planning isn’t just about accumulating the largest possible pension pot. It’s about creating a sustainable income that supports the lifestyle you want for as long as you need it.
Starting early gives you the greatest advantage, but it’s never too late to improve your position. Even in your 50s or 60s, the right strategy can significantly enhance your financial security in retirement.
The key is acting now, rather than just hoping things will work out. So, review your current pension arrangements, understand your likely income, identify gaps and make a plan to address them.
Retirement can be one of life’s most fulfilling periods. You have freedom, time and the opportunity to focus on what truly matters to you. Proper financial planning will ensure your money doesn’t become a source of stress that prevents you from enjoying these years.
At BDWM, we help Leicester residents create retirement plans that protect their lifestyle for the long term. We’ll assess your current position, understand your goals and build a strategy tailored to your circumstances. Contact us today for a no-obligation consultation to discuss how we can help you build a more secure and comfortable retirement.