Building a Retirement Plan
Retirement planning is about replacing your income with a combination of pensions, savings, and investment returns. The earlier you define your target, the easier it is to make small adjustments over time.
Step 1: Define Your Retirement Lifestyle
Start by estimating monthly spending in retirement: housing, food, healthcare, transport, travel, hobbies, and support for family. Consider whether your mortgage will be paid off and whether you plan to downsize or relocate.
Step 2: Estimate Reliable Income
List income sources you expect to receive: state pension, employer pension, annuities, rental income, or part-time work. This creates the “gap” your personal savings must fill.
- Expected pension income: conservative estimate
- Healthcare costs: often rise with age
- Inflation: planning should assume prices increase
Step 3: Determine a Target Savings Amount
A practical approach is to estimate the yearly income you need from your savings and translate that into a total portfolio size. Then compare it to what you have now and what you can realistically contribute each month.
Step 4: Choose a Contribution Strategy
Consistency matters more than perfect timing. Automate contributions and increase them when your income grows. If you have employer matching, prioritize capturing it.
Step 5: Manage Risk Over Time
Investments can grow retirement savings, but volatility is real. A common approach is to keep more growth assets early and gradually reduce risk as you approach retirement. Diversification and regular rebalancing help manage risk.
Conclusion
A retirement plan is not a single number—it’s a system that evolves. In the next page, we focus on planning for a house purchase, including down payment, affordability, and preparing for mortgage costs without derailing other goals.