What steps should I take to prepare for retirement?  

Mouthy Money Your Questions Answered panelist, Charlotte Strike, financial planner and mortgage adviser at Amber River C&M, answers a reader’s questions on retirement plans.

Question: I’m in my mid 30s and I’m worried about my retirement plans and whether they are sufficient. What steps should I take to prepare for retirement?  When should I start saving and how much should I contribute?

Answer: It is good to start thinking about retirement planning as early as possible. It is easy to put it off, but the younger you are when you start to plan, the better your retirement outlook will be.

For most people, retirement is no longer a point in time, but a process. Before you look at your finances, you should build an idea of the type of retirement you might like.

Will it be a ‘slowing down’ type retirement, or a super-active one, full of long-haul adventures? Where will you live? Will you downsize? What financial commitments are you likely to have? Will your expenditure change in retirement or will it stay the same?

Everyone has a different picture of how their retirement will look. By building a picture of your retirement, you will develop an idea of how much income you will need, and how long you’ll need it to last.

More Your Questions Answered

This can then be used as a guide to know how much you should be contributing to meet your goals, or whether your goals need to be adjusted. The cost of a comfortable retirement is £43,100 for a single person or £59,000 for a couple per year according to the Pensions and Lifetime Savings Association.

A first port of call in retirement planning is to look at your state pension: do you have a full entitlement, or do you need to make additional top-ups? You can see this on the Gov.uk website – https://www.gov.uk/check-state-pension – or complete a BR19 form to obtain a forecast.

The state pension is generous and shouldn’t be underestimated. It is currently £11,502.40 per year (2024/25 tax year) – to achieve this kind of inflation-adjusted income, you would need a pension pot of around £180,000.

However, the state pension is unlikely to be enough by itself. When you are at the start of your journey in accumulating funds for retirement, it is important that you have a pension and are contributing to it.

By doing so you get used to contributing to a pension scheme and paying attention to it. For those closer to retirement, it is important to assess how close you are to meeting your retirement goals.

For most people, their workplace pension will form the core of their retirement savings. It important to ensure that your employer is contributing to your pension plan. It is also worth finding out whether or not they will match any higher contributions you make. The Government will be contributing as well, and this can help you grow your retirement pot quickly.

Even if it looks relatively small today, the effect of compounding can be powerful. Over the years, even small contributions will add up and the longer they are invested, the more compound interesting will have an impact on the growth of the fund.

Every £2 you save for your future today could be worth £6.50 in 30 years’ time (assuming investment growth of 4% per year). A £50,000 pot at age 35 would be worth £133,291 by age 60 even if you didn’t make another contribution (assuming annual growth of 4%). Add in a £500 contribution every month and it would bump up to £458,000.

If you don’t think you’re saving enough, then it may be time to explore personal pension options. Alternatively, don’t forget your ISA allowance. You can put in £20,000 a year. While you don’t get the same tax relief on contributions, all income generated by investments held within the ISA is tax free, and there is also no capital gains tax.

There is no secret to a good retirement. It is just about saving consistently, maximising the tax breaks and harnessing the effects of compounding.

From time to time, it may be worth seeing a financial planning expert to ensure you’re on the right track, and that you’re making the right decisions on where to invest.

This article is for guidance purposes only and should not be construed as advice. If in doubt seek professional financial advice for help with retirement planning.

Charlotte Strike is a financial planner and mortgage adviser at Amber River C&M.

Charlotte is a member of the Chartered Insurance Institute and the Society of Mortgage Professionals and is now working towards her Chartered Financial Advice qualification. She has a particular interest in helping young people start their investment and pension journey and get a foot on the property ladder.

Photo credits: Pexels