Retirement planning: how to maintain your living standards

At a glance:

• People are generally living longer, which makes it even more important to plan carefully towards your retirement – particularly if you want to maintain a high standard of living.
• The sooner you can save for your retirement, the better. A financial expert can help you calculate how much you can afford to set aside and how much you will need in retirement to live as you want.
• There are tax implications to consider, too. An adviser can make sure you’re saving and accessing your money in an efficient way, making the most of the available reliefs and allowances.

A lucrative professional-services career allows you to enjoy a high standard of living during your working life. But what about when you retire?

According to forecasts, around one in three children born in the UK today are expected to live to 100 years old.¹ Life expectancy is increasing due to advances in medicine, health care and better working and living conditions.

While it’s great that people are living longer, have you considered how you would support yourself financially if you lived to 100? With your hectic working life, you may not feel you have time to spend thinking about your retirement. But your savings need to last for potentially 40 or more years after you stop work – particularly if you want to maintain the lifestyle you’ve grown used to as a professional in law or accountancy, for example.

No one knows what the future holds. But there are ways you can plan for a long retirement that gives you a comfortable lifestyle for as long as possible. This will also consider potential care needs in later life and your desire to pass on money to children or grandchildren.

Saving during your working life

When planning for a long retirement, it’s essential to make adequate provision during your working life to fund it. It’s easier for people to concentrate on the here and now rather than thinking about retirement that may be decades away – so this is where a financial adviser comes in.

A savings plan tailored to your needs is vital. We'll assess how much you currently earn and how much you can afford to set aside, mapping out a comprehensive savings plan. The earlier you start saving, the more time you have to prepare for your retirement.

We will also help you assess your risk profile. Your money will be invested in the stock market to give it the best chance of growth long term, and we’ll work out your exposure to risk depending on your age and how close or far away you are from retirement.

We advise everyone to pay as much as you can into a pension scheme. If you’re employed, your employer will also pay in – boosting your savings further. It can be difficult if you’re younger and have a mortgage and children to consider. But even if you can put 4% or 5% of your earnings into your pension, you’ll hopefully benefit from compound interest and investment growth over time.

Tax relief is a big bonus of pensions, and you can also think about saving into an ISA, which allows for tax-efficient growth and income. The different savings vehicles are something we’ll discuss with you.

Achieving retirement

Once you’ve retired, the first question you’ll ask is how to make your money last for years or potentially decades.

The advice will depend on the type of pension you have. If you have a Defined Benefit pension, that’s great because it guarantees an income for the rest of your life. But these schemes are becoming rarer for working people today. Many people will have a Defined Contribution scheme, which means their income depends on how their investments perform.

Another crucial considering is when to access your pension. This decision depends on your other sources of income and savings, and it's something we consider on a case-by-case basis. We'll discuss whether it's best to take the 25% tax-free cash as a lump sum or on a regular basis.

Planning for the future

Financial advisers will often conduct cash-flow modelling to plan for 10 or 20 years ahead and beyond. We’ll look at all your income sources and how much you should take from where. We’ll also take inflation into account in our planning, to help your savings at least retain their value.

You may wish to gift money to family members to support their financial goals. We’ll help you work out how you can afford to give in the most tax-efficient way. This may include taking advantage of gifting allowances or setting up a trust for lump-sum gifts.

For people who haven’t yet retired, it’s easy to look at your current lifestyle and assume it will stay the same. But people typically find that in their 80s, their spending reduces as they travel less. People often don’t need as much as they anticipate.

However, it's wise to plan ahead for unforeseen expenses such as care or nursing fees.

Overall, there’s no easy answer on how to fund a long retirement. Each individual will have different needs, savings and family circumstances. This is where a financial adviser can really add value, as we help you navigate the future aiming for you to have everything you need to maintain your living standards today.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Source:

1 Office for National Statistics, ‘Past and projected period and cohort life tables: 2020 based, UK, 1981 to 2070’, January 2022

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