Approaching retirement? What to do if you don’t know your income projection

4th December 2018

We all know we should be saving for retirement. But research suggests many of us don’t know how much we’ve put aside for life after work, even as we approach the milestone.

Understanding your projected income for retirement is crucial for making important decisions, from when you can afford to give up work to how much you can sustainably take annually. Without this vital piece of information, you could be at risk of making a decision that may cause financial insecurity later in life. Or you may find you’ve saved enough to retire sooner than you thought. As a result, checking the figure is vital for your retirement plans.

If keeping an eye on your projected income isn’t something you’ve been doing, you’re not alone. Research from Aviva found:

  • Two in five employed 46 to 55-year-olds don’t know how much they have saved for retirement despite approaching traditional retirement age
  • This compares to 24% of employees aged 22 to 30
  • 49% of all UK employees believe they need to save more
  • And the most common emotion associated with people’s savings is worry (18%)

While keeping track of retirement savings is important throughout your working life, it’s particularly critical as you approach the date you want to give up working.

Alistair McQueen, Head of Savings and Retirement at Aviva, said: “Not knowing how much you have saved in your pension pots is like approaching retirement with a blindfold on. For those in their 40s and 50s, understanding retirement savings is especially critical. They can be accessed at age 55, at which point some big decisions might need to be made. Without knowing how much you have saved, it’s difficult to put a plan in place that could improve your retirement.”

If you’re among the workers that don’t know how much you’ve saved for retirement or what your projected income is, here are some steps you can take.

1. Gather information about all your pensions

Your first step should be to see just how much you already have stored away in pensions. You should get annual statements from pension providers, showing you the total value held. However, if you’ve moved and forgotten to update your address, you could have some ‘lost’ pensions.

With the average UK adult holding 11 jobs over their lifetime, it’s not surprising that we lose touch with a few of our pensions. But recent figures from ABI calculated the total amount in ‘lost’ pensions was almost £20 billion. You could have a nest egg that’s quietly been growing without you realising.

Once you have the information for all your pensions, you’ll need to decide what to do with them. You have two options. You can either keep them as separate pensions, which can be difficult to keep track of, or consolidate them. Whether or not consolidation is right for you will depend on your circumstances. You could face additional charges and you’ll have to decide which provider to transfer your other pensions into. Your existing pensions might also have special benefits that would be lost on transfer, so it’s important to get financial advice. If this is an area you need help with, please contact us.

2. Assess your other sources of retirement income

In addition to your Workplace and Personal Pensions, you’ll probably have income coming from other sources too.

For most people, the State Pension will provide the foundation of their retirement income. Assuming a full National Insurance (NI) record, the State Pension currently pays £164.35 per week. If you have less than 35 qualifying NI years but more than ten, you’ll receive a portion of the State Pension. You can see how much State Pension you can expect to receive here.

On top of this, you may have investments, savings and assets like property that will supplement your pensions. Gathering all this information together can seem like a time-consuming task but it’s one that’s worthwhile. It’ll help you plan for your future and could give you peace of mind if you have concerns.

3. Think about when you want to retire

The age you want to retire will have a big impact on the income you can sustainably take from your pension each year.

If you’re hoping to retire before the State Pension age, you’ll also need to factor in covering this shortfall in income initially. Alternatively, you may decide that you want to continue earning an income through employment or self-employment, giving you greater flexibility. Your retirement plans will play a significant role in what you can afford to take out of your pension both when you first retire and in the future.

While we’re on the topic of taking a sustainable level of income, it’s wise to consider your life expectancy at this step too. Many people underestimate how long they’ll live for and this can leave them struggling financially in later years.

4. Seek financial advice

Sorting through multiple income streams can be challenging, particularly if you have some complex assets. This is where seeking professional financial advice can help.

Using cashflow modelling techniques, we’ll be able to show you a visual representation of your finances and how they may change. As a result, you’ll be able to clearly see how your retirement provisions will be affected by making different decisions. For example, how would retiring five years early affect you? Or what difference would withdrawing 3% compared to 6% annually through Flexi-Access Drawdown make?

If you’re approaching retirement, please contact us. We can help you understand how your current retirement provisions align with your goals and the steps you can take to make your aspirations a reality.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.