September 2007

Q & A - Retirement Planning

Q. I want to start saving for retirement but I have no idea how much I should put aside. I earn £28,000 a year and am 33 years of age, so is there a set percentage I should put into a pension?

A. The answer to this question depends on so many things, but the basic principle is to start with what you are trying to achieve. In other words, when do you want the option of retiring and what income in today’s terms are you looking for? Next you should consider the value of anything you have built up to date which is earmarked for long term investment – not necessarily restricting this to pensions, it could include stocks and shares, property, ISAs and PEPs, and the impact of any state benefits.

You then have to make assumptions as to how much inflation is likely to impact on your plans and what level of growth you expect to see for your investments.

By working backwards from retirement objectives in this manner, it is then possible to calculate an approximate shortfall (if there is one) and how much you need to save in order to address it.

Although there is more work involved in this approach it is far better than picking a number out of thin air and hoping for the best. The key to the successful implementation of this strategy however, is to review it regularly in order to ensure that it remains up to date.