Q&A: How do you know if you're on track for retirement?

Andrew Sutherland | Contributed

Q: How do I know if I’m on track to reach my happy retirement destination?

A: Retirement can seem a long way off. Whether you are some way off, or nearing your target age, but still fully engaged in your working life, the truth is that all of us need to think ahead about whether our existing savings, investments, and plans are sufficient.

Even relatively small actions can make a big difference in the future, irrespective of how close you are to retirement.

How do you know if you’re “on track”? Importantly, this isn’t about having a certain amount saved or invested. How much you need will depend on various factors, some of which you can control and others you can’t. The most important aspects are:

When you want to retire: The earlier you retire, the longer your retirement is likely to be, so you will need to make more provision.

Your desired retirement lifestyle: There is no point in “downsizing” your lifestyle in retirement just so that you can stop work earlier. You need to be realistic and then plan accordingly.

How much you are saving currently: Is it enough, or will it need to increase? If it needs to increase, that might be possible once expenditure reduces as children fly the nest, or once mortgage payments reduce or disappear, but these factors require careful planning. You might be saving more than you “need”, and you can plan for a “better” or earlier retirement.

Expected income from pensions and investments: Some of us will benefit from defined benefit pensions – particularly those who work in the public sector – and so will have a guaranteed lifetime income in retirement. For the rest of us, we will need to ensure we have sufficient money invested to provide that income in retirement.

Any financial commitments or debts: A balance needs to be struck between paying enough to reduce debts over time, while also saving enough so you can benefit from compounded growth over time. It is rarely the case that it will be best to repay debt before starting to save.

With various factors at play and some of them hard to quantify – how do you know how long an invested pension will last, and how much to take at a time? – it can be hard to consider everything in the round. Beyond that, how do you access money from a pension in the first place?

Engaging a financial professional, such as a fully qualified financial planner, can make sense, particularly if you are a few years away from your target retirement age. They will be able to run through everything in your plan and even provide different scenarios to illustrate your current and potential future positions for clarity.

Acumen Financial Planning Ltd is authorised and regulated by the FCA, FRN 218745. The content of this article is the opinion of Andrew Sutherland and does not constitute advice or recommendation