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Retirement planning

Planning for your retirement – we asked specialist medical Independent Financial adviser Darren Scott-Guinness from Dental and Medical Financial Services to give us a summary. You can contact Darren using Medics’ Money here for a free no obligation consultation including free calculation of your pension situation.

First, you’ll need to think about what age you want to retire. Currently, the age you need to be before you can collect a state pension is 66, but that number is increasing over the next few decades. Then consider the average length of retirement. With the life expectancy of 80 years for men and 83 for women, you’re potentially looking at close to 20 years of retirement — or8,000days! It’s hard to believe you could enjoy nearly a quarter of your life outside of work during retirement while you’re in the middle of your prime professional years, but it’s essential you plan for that amount of time, so your finances don’t fall short.

Calculating your pension pot

Once you have a rough idea of when you expect to retire, you need to consider the amount of money you’ll receive from your state pension each year. At the moment, for a man and a woman, it’s £7,895and£7,480, respectively. So, depending on whether you’re in a relationship or not, a straight male/female partnership combined will bring home £15,375per year while a male/male couple can look forward to slightly more and a female/female couple will, unfortunately, be taking home slightly less.

Adding up the cost of your retirement lifestyle

Now that you know how much assistance you’ll get from the government, it’s time to figure out how much you’ll actually need each year to live the kind of lifestyle you want to in retirement. This will help you establish an estimated monthly income and of course, figure out the sources of said income. When building your plan, consider the essential living expenses such as a mortgage or rent, (if you still owe money on your home or don’t own your place of residence) groceries, utilities and other bills, transportation, clothes, insurance, and miscellaneous costs.

If you don’t imagine doing much more than staying close to home, spending your time discovering new hobbies or picking up old ones and socialising a few times a month, with a few modest holidays sprinkled throughout the year, you fit into the “comfortable” band of retirees. For a more “luxurious” retirement, incorporate costs for more shopping trips, treats, holidays and even some long-haul trips.

Of course, there will always be variables to consider and surprises life will throw at you. Maybe you’ll decide to move to a new house or get a holiday home. Maybe you’ll find retirement too boring and work part-time. Or maybe you’ll have health issues to deal with that won’t be covered by a wealth protection policy – if you even have one! Any one of these scenarios will impact your retirement income so your financial situation may change, and your plan should take unexpected events into account.

What are the expected costs?

Across the board, the average couple should expect to spend about£17,000each year on basic living expenses. Couples living a comfortable lifestyle can expect to spend £26,000per year, while a more extravagant lifestyle could cost you and your partner around £39,000 a year.

It’s always best to err on the side of caution and over-estimate, so you should use at least 20 years of retirement as the basis for your calculations and expect to need a total of £520,000to live comfortably and £780,000for you and your partner to live luxuriously. Seeing it laid out like that as a lump sum might seem daunting, but it helps to see the ultimate end goal when you’re working out exactly what you need to do to get there. But for now, take a step back and use the annual cost of living numbers for planning.

Plugging the financial gap in your retirement pot

Now that you’ve established how much income you’ll need annually, you and your spouse need to look at the gap you’ll need to fill with private and workplace pensions and any other avenues you think you’ll employ to bring money in. As we mentioned, a couple should expect to bring in approximately £15,375 per year on state pensions alone but will spend around £26,000 to live comfortably. This will leave you with a gap of about £11,000to bridge. If you plan to indulge in the finer things in life and live luxuriously, you’ll need to make up £24,000. While careful, detailed planning is the foundation for a successful retirement plan, it’s important to remember that just like with any other financial plan, you need to revisit and revise often.

When developing your retirement plan, you’ll need to consider:

  • your attitude toward risk (and when you can afford to be more aggressive versus when to be cautious),
  • the amount of time you have to save and invest,
  • inflation

At the beginning of your saving and investment journey, your portfolio might consist of riskier investments with higher rates of return — a typical pension plan may start out as 60%equities, 30%bonds and 10%‘other’, including real estate or commodities. But once you reach retirement age, your plan will shift toward less volatile investments and the allocations may adjust to 70%bonds, about 20%in equities and up to 10%in cash. All the while, your portfolio should maintain a diverse mix, the combination will just be adjusted to help mitigate the effects of any one area performing poorly.

Start adding up your own numbers!

The single most important thing you can do to help yourself make it through retirement is to work with an independent financial adviser, particularly one who has experience working with healthcare professionals. Advisers that have specialist knowledge of your specific occupation and sector will be better equipped to advise on what you will need financially in order to fulfil your desired retirement lifestyle by recommending ways of potentially achieving your goals. You won’t have to go through the planning process on your own and they’ll proactively reach out to you for reviews to keep you on track so there’s one less thing for you to worry about. Having a professional partner in your corner will give you the extra edge needed to win the retirement numbers game.

You can contact Darren using Medics’ Money here for a free no obligation consultation including free calculation of your pension situation.

This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice. Dental and Medical Financial Services is an appointed representative of Best Practice IFA Group Limited, which is authorised and regulated by the Financial Conduct Authority.

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