Pension rule shows how much money you're missing for happy retirement

Warren Shute is a multi award-winning Chartered Financial Planner, Certified Coach, author of The Money Plan, and Sunday Mirror columnist

Not surprisingly, I’m a big believer in planning. That’s especially true when it comes to the golden years of our retirement. But will those years really be golden, or more like copper?!

It is during times like these that it is especially important we make time to think and plan our future finances. I am in the fortunate position to have shared the retirement plans of many over my 30 years as a financial planner. I know, I don’t look that old!

Meeting these people has shown me some patterns, things people have had in common to help them enjoy a successful, vibrant retirement. You can benefit from that experience, and plan ahead to help make your retirement the best years of your life.

Know your number

How much will you need to have saved to enjoy a comfortable retirement? I call this your number and it’s unique to you because it depends entirely on your retirement plans.

You can calculate your number by writing down all the things you expect to spend in your retirement years. That may seem difficult but if you break it down into a plan it will become clearer. Some costs you’ll know, like utilities. Others you’ll need to estimate. And this is where those patterns come in.

Life’s chapters

In my book The Money Plan I refer to the three chapters of our retirement. In your first chapter of around 10 years, you’ll likely be more active and want to travel more often and further afield – play out your bucket list – so you’ll spend more.

I enjoy receiving emails and postcards from my clients as they travel the world. I get to enjoy their retirement with them. The second chapter often begins around 75 and typically sees less travel, or at least less long-haul, which reduces costs.

However many people take up new hobbies around this age. It may be caring for grandchildren, photography, learning a musical instrument or golf.

During the third chapter, around 85 onwards, expenditure is more about getting around and help within the home. Do we keep a car or not? Do we need a cleaner or gardener? Medical spending is often the overriding cost.

Once you’ve added up all your projected costs, you can plan your monthly budget. Use the free Cashflow App at WarrenShute.com or download a spreadsheet to help.

Do you have enough?

To cover these costs you will have a mixture of your state pension and any private pensions. Request updated statements to see where you are now.

If you remember having a pension but can’t find the details, try the free pension tracing service – gov.uk/find-pension-contact-details. If you have enough now, you could ask why do you continue to work?

If you’re short, calculate how long would it take to meet the shortfall using the rule of 300: multiply how much you’re short each month by 300 to see how much more you need to save. So if you need an extra £200pm, you need to target an additional £60,000 in your pension (£200×300).

For a more accurate picture, you can use my free cashflow app at WarrenShute.com.

Start planning your retirement now – not just by knowing your number and saving but by deciding how you will live the rest of your life. We only get one chance, so make it count. For more retirement planning ideas visit LexingtonWealth.co.uk.