A simple three-step guide: estimate, calculate and plan
Deciding how and when to retire is one of the most significant life decisions. Longer life expectancy, volatile investment markets, ever-changing regulations, and the various options for withdrawing your pension can make retirement seem understandably daunting.
On top of this, the concept of ‘retiring’ is open to interpretation: for some, retirement plans involve spending time with family, holidays abroad and home renovations. Others might consider working part-time and pursuing phased retirement, or prioritising a lifelong hobby or passion.
Our simple three-step guide: ‘estimate, calculate and plan’ will help you prepare for your retirement, whatever your plans may be.
Estimate your annual cost of living. Future expenses can be hard to predict; you can reach a ballpark figure by doing the following:
- Review your current regular outgoings (household expenses, travel and leisure, mortgage/rent payments)
- Subtract any expenses you no longer expect to have in retirement
- Consider any anticipated/planned expenses (travel plans or replacing a car, for example) or future costs that may come up
Various online calculators can help you estimate your total annual living costs. The budget planner from the government’s MoneyHelper website is one such example.
An alternative way to estimate your cost of living in retirement is to use ‘The Retirement Living Standards’ by the Pensions and Lifetime Savings Association. This guide forecasts what retirement life may look like based on three annual income categories:
Calculate your retirement pot – it is important to consider all sources of income when approaching retirement. You will need to factor the following into your expected pension pot:
- State Pension – most people will be entitled to a government-provided State Pension from age 66 (rising to 67 between 2026 and 2028). To check how much State Pension you can get and when you should expect to receive it, you can visit Check your State Pension forecast – GOV.UK (www.gov.uk) and follow the online instructions.
- Workplace Pension – check how much you have accumulated in your workplace pension through your employer.
- Other Pensions – check how much you have accumulated in private pensions or pensions established under different employers. If you need to find contact details for a lost pension (workplace or personal), you can visit Find pension contact details – GOV.UK (www.gov.uk) and follow the online instructions.
- Other investments – you should also consider other forms of income down the line, for example, individual saving accounts (ISAs), investments (including property rental income) and any potential inheritance.
Plan to reach your retirement goals – this is a two-step process. Step 1 – Once you have totalled up your savings and various sources of income, it’s time to estimate your expected income.
- Pension income – there are various pension calculators available online that can estimate the income you’ll get when you retire. You can use MoneyHelper’s pension calculator by visiting Use our pension calculator | MoneyHelper and following the online instructions.
- Investment income – various investment calculators are available online to help you calculate what your investments will be worth in the future. It’s best to use the investment calculator of the provider with whom you have invested.
This will then help you project the value of your pension and investments when you reach retirement age.
Step 2 is to determine whether these projections match your estimated annual cost of living.
Don’t worry if your initial projections don’t match your estimated annual cost of living in retirement. There are various options available to you. Working with a financial advisor or retirement planner can help you develop a plan that aligns with your retirement goals. To find an advisor near you, please visit Match with your professional adviser | Unbiased.co.uk.