When Should You Start Planning for Retirement?
There’s an irony to an article about planning for retirement.
Not because us finance writers are particularly prone to sarcasm, but because of our readership.
Half the battle of planning for retirement is realising that it’s something you need to do, so the more likely you are to read this article, the less you’re going to need it.
Just by being here, you’re a step ahead.
But let’s say you’ve found this article and you’re just considering your retirement plans. When should you start the financial planning for retirement?
The Earlier, the Better
The simple answer is right now.
The sooner you start saving for retirement, the more money you’ll have. It’s not just a matter of how many times you add to your financial pot.
It’s also about the compound effect of that money. Whether you’ve put it in a pension scheme, set it aside in a savings account, or put it into investments, that money is making you more money.
The sooner you save or invest it, the sooner it will start growing. The earnings will feed back into the pot and accumulate their interest.
If you’ve been smart with your money, then by the time you read this, you’ve set aside a good chunk of cash and investments.
It might be time to step up your planning game.
Getting Serious
Once you’re into your forties, retirement planning becomes a more serious matter.
You’ve been through your carefree years. The odds are good that you’re settled into a career and family life.
You know roughly how things are going to look for you from now until retirement, even if the finer details are hazy.
That means that it’s time for some more detailed planning.
Start thinking about what you want your retirement to look like. When will you retire? How active will you be? How much income will you need to maintain a comfortable lifestyle?
These questions will shape the steps you take.
Steps to Take
Start by looking at your work pension plan.
Find out how much you’re likely to get out of it when that will happen, and how close that gets you to your goals.
If you’ve moved jobs, then you may have several work-based pensions.
Make sure that your details are up to date with all of those schemes, so that you don’t fall out of contact.
That will make it easier to access them when the time comes. Gather their details in a single place for ease of reference.
If you’ve got any debts, then now is the time to pay them off. The odds are that they cost you more than the money can earn elsewhere, so it’s better to get them cleared.
This includes paying off your mortgage so that you’re secure in owning the whole value of your home.
This is also an excellent time to increase the amount of money you’re investing in your retirement.
Pay rises and bonuses provide extra finance that could set you up for a very comfortable retirement.
When looking at your investments, consider your priorities.
Are you more interested in trying to have a large sum for retirement or in protecting the value of what you’ve already got?
The closer retirement comes, the more certainty will become a priority. You may want to start moving your investment to lower risk assets, ones that won’t bring such great returns but that you feel confident will retain their value.
Also look at moving towards dividend shares. Regular dividends are a reliable way of providing a steady income in retirement.
Later Steps
As you move into your fifties and then your sixties, it’s time to plan in more detail. Think about exactly when you want to retire and how that fits with your income plans.
Get projections for your state and work pensions, which are more likely to be accurate now that the time is approaching.
Double check that your planned retirement is still the one you want and that your financial plan fits it.
If possible, keep increasing your contributions and investments. While it’s never too early to save for retirement, it’s also never too late.
If any debts are still outstanding, pay them off.
In the last five years or so before retirement, you can plan the fine details.
What are you going to do with your pension money – take lump sums, accept a steady income, buy an annuity elsewhere?
How much of what you need will be provided by your investments and are they healthy enough to do it? Can more of them be moved to dividend shares, to supply that steady income? Will you want to keep working, perhaps in a part-time or consulting role?
The sort of planning you need to do for retirement changes through your life.
But if you’re ever asking yourself when you should start planning, the answer is right now.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
