Planning for retirement at every life stage

Planning for retirement at every life stage
  • Retirement Planning
  • 4 minute read

Planning for retirement is a continuous, lifelong process that evolves over time. As you move through the different stages of life, it’s important that your retirement plan advances with you.

In this article, we explain how to plan for retirement at every age. This will help you understand what you need to do at each different stage of your life to ensure that you achieve your retirement goals.

Your 20s: a great time to start saving for retirement

Retirement planning often isn’t a priority in your 20s, simply because retirement is decades away. However, by putting a retirement savings plan in place now, and saving regularly into either a pension account or a tax-efficient investment account such as a Stocks & Shares ISA, you can really set yourself up for the future. Over multiple decades, a small amount of savings can grow into a large sum, thanks to the power of compounding.

Now is also a good time to educate yourself on financial topics such as investing and pensions. Learning about wealth management now will help you develop good financial habits and put you in good stead for the future.

Your 30s: stay focused on retirement

In your 30s, saving for retirement can be challenging because you’re likely to have more financial commitments than you had in your 20s. You may now have a family to support, or a mortgage. It’s important to stay focused on retirement, however. Putting money away for retirement now, will pay off down the road.

Now is a good time to focus on  minimising debt. In your 30s, it’s common to have a substantial amount of debt, including mortgages, car loans, education loans, and credit card debt. The more you can pay off now, the better.

At this age, you still have plenty of time until retirement, so optimising your asset allocation for long-term growth is a sensible strategy. Having plenty of exposure to growth assets such as equities could be a good approach.

Your 40s: check your retirement plan is on track 

Your 40s are a great time to take stock and make sure that your retirement plan is on track. One smart move at this age is to work out how much money you’ll need to retire comfortably. Here, there are many variables to consider, including the age that you plan to retire, your life expectancy, your income requirements in retirement, your expected investment returns, inflation, tax rates, and whether you qualify for the State Pension.

Retirement calculators can be useful when it comes to determining how much you need to retire, however, it’s important to remember that these are based on assumptions. As such, it can pay to speak to a financial adviser who will be able to provide you with more personalised advice.

By your 40s, it’s likely that you will have had multiple employers and, therefore, accumulated a number of different pension pots. Consolidating these pension pots can be a sensible move. This will make it easier to manage your pension savings and give you a better understanding of whether you’re on track to achieve your financial goals.

Your 40s can also be a good time to increase your pension contributions as you’re likely to now be earning more than you were in your 20s and 30s.

Your 50s: time to ramp up your pension contributions

In your 50s, retirement is no longer a distant concept, and time is short if your plans aren’t on track. If you haven't yet prioritised retirement planning, now is the time to do so.

At this stage of your life, you may want to consider making additional lump sum contributions into your pension in order to boost your retirement savings. Bear in mind, however, that there’s an annual pension allowance that limits the amount you can contribute into your pension in a single year and still receive tax relief. For the 2020/21 tax year, the standard annual allowance is £40,000, or 100% of your income if you earn less than £40,000. If you haven’t used your full annual allowance in the previous three years you may be able to take advantage of pension carry forward rules and pay in more than the annual £40,000 allowance.

It’s also worth thinking about the Lifetime Allowance in your 50s. This is the maximum amount you can save in your pension without paying excess taxes. For 2021/22, this allowance is £1,073,100. If you think you’re set to breach the Lifetime Allowance, it can be a good idea to seek expert advice from a financial adviser.

Your 50s is also a good time to review your asset allocation. Now that you are getting closer to retirement, it’s sensible to begin reducing your exposure to higher-risk assets such as equities. If you are unsure about the most appropriate asset allocation at this age, it’s a good idea to consult a financial adviser. An adviser will be able to tailor your asset allocation to your own situation and requirements.

Your 60s: prepare for the decumulation phase 

Your 60s is a crucial period in the retirement planning process as retirement for some is just around the corner. One smart move at this age is to prepare a retirement budget. Having a rough idea of your expenditure levels will help you plan for the long term.

Now is also a good time to start thinking about pension decumulation. This is the process of converting your pension savings into retirement income. These days, there are a number of options to choose from when it comes to pension decumulation. It’s important to consider them all carefully and seek professional advice if you’re not sure which approach is right for you.

It goes without saying that your asset allocation is very important at this stage of life. With retirement only a few years away, you don’t want to be overexposed to higher-risk assets as there is less time to recover from a major shock to financial markets.

Finally, it’s important to review your retirement plan regularly in your 60s. The more often you review your progress, the more prepared you’ll be for retirement.

Retirement planning: a lifelong journey

Retirement planning is not a one-time event. Instead, it’s a lifelong journey that, when done well, can lead to a successful, worry-free future. By planning ahead, and constantly evaluating your progress, you can achieve the retirement lifestyle you envision.

No matter what life stage you are at, we can help you create a clear plan for the future. Our retirement planning service is designed to help you build the wealth you need to achieve the retirement you deserve.

For more information about our retirement planning services, or if you have any questions, don’t hesitate to get in touch by clicking the button below

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