Your number is, quite simply, the capital needed to fund your retirement.

Free of mortgage commitments, what size pension fund would maintain your lifestyle without being drawn back to work? Research from Royal London suggests the average person will need a £260,000 pot to enjoy a basic retirement, but what about your future aspirations? For most people is that going to be enough? To help arrive at your number, we’d suggest there are five things you need to consider:

1. When

When do you want to retire? You may be planning an exit strategy from the business or agreeing a golden handshake, but at what age are you hoping to hang up your tie? Traditionally it coincided with your State Pension, but thanks to Pension Freedoms it’s no longer as relevant. Defining your own target enables you to set realistic benchmarks, measuring progress along the way.

2. Lifestyle

It’s important to understand what you want out of life. Recent research by consumer group Which? found retired couples covering household essentials, also wanting to enjoy long-haul holidays and a new car every five years, will need around £39,000 a year. Whilst your State Pension will cover a proportion, it’s not going to be close to £39,000. Think about your income and expenditure commitments now, how does this reflect with your expectations?

Retirement options are much more complex since Pensions Freedoms; in many cases a guaranteed income from an annuity is a relic of the past. A predictable, reliable income drawn from your pension fund will require careful management, considering market fluctuations, the desire to leave a legacy and the unknown costs of long-term care, to name just a few considerations.

3. Longevity

Research published by Retirement Advantage shows that almost 80% of people over the age of 50 significantly underestimate how long they are likely to live. This puts them at a serious risk of running out of retirement income. Men and women aged between 50 and 64 expected to live to 82 years old, but, statistics suggests their life expectancy to be 88 and 90 years old respectively! Be realistic, data doesn’t lie.

4. Unconsidered costs

Naturally difficult to predict, here are four areas to note (acts of God not included!):

• As an aging population we are living longer, less healthy lives. The Money Advice Service estimate the average nursing home to cost around £40,000 a year; an unfortunate reality but an important point.
• Whilst long-term care costs are unwelcome, have you considered that in good health you are more likely to be travelling, enjoying your free time and making new memories? You may nearly spend as much.
• Perhaps your children or grandchildren will need a little help getting on the property ladder? Research from Legal & General predicts that in 2018 one in four UK housing transactions will rely on family help with an average contribution of £21,600; potentially a large amount of your planned annual expenditure.
• Undoubtably the biggest hidden cost is inflation. In real terms, what will be the value of your pension savings be?

These are just the known ‘unknowns’; there may be others that occur down the line, causing a drain on capital and effecting your income.

5. Financial Planning

Identifying and measuring these factors is a challenge. To make real sense of your number you need professional, considered, financial planning. A bespoke financial plan, incorporating lifetime cashflow planning, will identify your objectives and map how to best achieve them with a coherent, reviewable strategy.

Effective cashflow planning predicts the growth and income available from your pensions and assets in the short, medium and long term. It gives the ability to plan your retirement in various scenarios; at different ages, with the impact of large purchases, costs, gifting to your family, downsizing your home, etc.

Cashflow planning is not a one-time-process and will need regular reviews to reflect your evolving circumstances, but it will give you peace of mind, knowing you are saving towards a financial future that you have carefully considered and planned.

Ultimately, professional financial planning empowers you, making real sense of your financial situation. At Boolers we are a leading firm of pension specialists and wealth managers, get in touch to put your number in perspective.