Setting goals

It's a good idea to set goals and plan ahead for your finances – and setting goals is the ideal partner for budgeting. But, even if you were a goal setter while you were working, retirement's different and it isn't always easy to know where to start. A few simple questions should get the ball rolling though. 

Why do I need to set goals for retirement?

Setting goals in retirement, making plans for the future, or planning your retirement – however you describe it, the process of getting your finances in order can be well worth the effort. For starters, it’s reassuring knowing you have a plan. Also it makes it easier to see if there’s anything you should be doing to stay on track.

So how do I start?

We suggest sitting down with a pen and paper, and thinking about this in three stages – setting short-term, medium-term, and long-term goals.

  • Work out what’s ‘going out’, now and in the future
    To start with, you’ll benefit from understanding what your outgoings are at the moment and what they’re likely to be in the future. You could factor in things like mortgages coming to an end perhaps, or credit cards being paid off. This will give you a timeline, showing how much money you need for the long-term. Our budgeting pages will help with this process.
  • Make some choices about your ‘future'
    What would you really like to do when you stop working? Carry on with life without making too many changes? Move abroad, travel extensively or realise a long-held ambition? Decorate, garden more, take up new hobbies? With more time than you’re likely to have ever had, it's useful to think about the shape of your retirement so you can see how your finances can help you realise your plans.
  • See what’s coming in
    Focus on your existing pension plans – don’t worry about the effects of inflation for the moment, this is a ball-park exercise – as these are what you’ll need to adapt if your short-term goals and your long-term goals aren’t aligned. 

    Get an estimate of your State Pensionyou can calculate it on if you are unsure. Now take a look at your workplace or private pension statements to see what the estimates are for the monthly retirement income your pension may provide, if it’s converted into an annuity. Again, a reminder; this is only ball-park – but that annuity figure is one you’d receive as a regular retirement income, usually for life. The statement will probably assume that you don’t take a tax-free cash lump sum and it will be shown before tax.

    Finally for this stage, factor in any other income that you’re confident you’ll receive, such as benefits, rental income, savings and investments. Added together, you should now have an idea of how much money you may have available, on a monthly basis, when you retire. Although bear in mind that some of these income types might change depending on what happens in the financial markets or due to changes in regulation such as tax allowances.

How will these goals change over time?

Everyone’s circumstances are slightly different. Some things will depend on your physical and mental health, and your personal relationships too. You may not want to move home without your partner, for example, or you might consider travelling extensively on your own at some point – as a way of rediscovering life after losing a partner.

The level of savings you have is likely to change of course, if you spend money ‘en route to retirement’, and the value of your investments may go down as well as up. Your family’s fortunes may have an impact on what you’d like to do too. Plus, there may well be changes to regulations that affect your pension pot now – or pensions in the future.

The point is that by setting any goals – even if they’re not highly specific – and by knowing what your outgoings are and what your income is likely to be, you’ll be much better prepared to manage changes in your plans in the future. You'll also be prepared to boost your pension so you’re ready for them now.

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