Aligning Plans with Finance - Part 2

In the second part of aligning plans with finance I am going to gain an understanding of where I am with regards to achieving my retirement goal and how much longer it is going to take me to achieve this.  From this I can calculate out the earliest age I can retire at.

From part 1 I know what I need annually minimum to retire and live in line with my retirement plan.

First step is to understand how much I need in my pension pot to achieve my required annual income.  To find this out there are several pension calculators on the internet that allow me to calculate this.  I used this simple calculator.  This tool enabled me to understand how much I needed in my pot to achieve my goal.

Now I need to understand how much I have in my pension pot and savings.  To achieve this, I add up the following:

• Current Pension.
  
  
  
  • I have two pensions, so am quite lucky that I don’t have to chase down a lot of small pensions like some people will have to.  I need to calculate the value of these and add them up to work out the total pot.
  
  
  • Once I understand the total pot worth, I can use the following site to help calculate my return at various ages.
  
  
  
  


• Any long-term savings.
  
  
  
  • Add up all my long term savings and then calculate the average return I would hope to get on these.  Working on the assumption that this will be invested in a stocks and shares tracker ISA and that the average return from historical data is 10%.  Allowing for depreciation of the pound I can work on a return of 5%.  I will cover this in more detail in a later post.  The main point is that this investment can go up and down and as such can affect what returns I will receive.
  
  
  
  


• Any equity that I am going to receive from downsizing property.
  
  
  
  • I am expecting to release equity from my property when I move.  I have assumed that I will receive the same return on this as if it was in savings.
  
  
  
  

There are various options I can take when I get to pension age of what I do with my pension.  These are listed out here.  I don’t intend to list them out, but with annuities not currently giving a great return currently I have chosen to go for an adjustable income and draw down on my savings pot.  This comes with risks.

From the sums I have done above, I will be able to achieve my required retirement income.  If I hadn’t been able to, I would have had various levers that would have to adjusted to achieve my retirement goal.  Such as, work longer, change my plan to reduce how much I require in retirement or increase the amount I am saving, which would have meant adjusting the way I live today.  A lot of this comes down to lifestyle choices and I will talk about these more in a later post, but to summarise I need to live my life and not constantly worry about having enough money in retirement.  I would rather work a bit longer than not treat myself every now and then

At no point have I mentioned my state pension.  This is for two reasons; I want to retire long before it would kick in for which for me is currently 67.  I have no idea what the pension age will be by the time I reach 67 or if the state pension will exist by then.