How To Forecast Your Retirement Income in a World of Pension Reforms
At a time when managing your pension can already be a challenging process, recent reforms have entered the mix to make the simple act of saving for retirement as clear as mud for many who are approaching retirement.
When the playing field is constantly changing, how can we forecast our retirement income in a way that takes current and future pension reforms into account?
Only this summer, Labour introduced its Pension Schemes Bill, which is geared towards helping 20 million UK adults manage their pension pots and merge existing pensions into one.
Although the move was largely positive for pension savers, it underlines how quickly things can change when it comes to preparing for your retirement.
So, what can you do to gain a clearer picture of your retirement income when so much is subject to change over the years ahead? To forecast your retirement income with accuracy, you’ll need to look at the facts and figures of your income streams and use the absolutes that you have to account for any future uncertainties surrounding your pensions.
Because pension reforms can change a lot about what we know when it comes to pensions, you should always reassess your forecast each year and review your plan to ensure that it continues to match up with your retirement expectations. With this in mind, let’s take a look at the best ways to forecast your retirement income:
Track Your Income Sources
You must know where all of your pension pots are and how much they hold. This process may require some digging around for workplace pension statements from old employers.
Checking the projected growth for defined contribution and defined benefit pensions can help to put you on the right track. However, pension reforms can also impact employer contributions and how schemes are managed, so if you and your employer are actively paying into one pot, you’ll need to be ready to adapt to changes.
For State Pensions, you can request a government forecast that provides you with an accurate state of play report that tracks how much you stand to receive.
When tracking your pension income sources, also keep on the lookout for any additional private pension schemes, like self-invested personal pensions (SIPPs), as these can all significantly impact your retirement income, especially when you consider the latest budget changes.
For a more complete picture of your wealth upon retirement, also factor in other assets such as your ISAs, cash savings, real estate, or income from property or inheritances.
Use Calculators
One of the most effective ways to accurately forecast your retirement with up-to-date changes to legislation surrounding pensions is to use one of the many excellent calculators available online.
Robust tools can help you calculate how much you’ll have when you retire in an adaptive way that helps to better illuminate how your savings could work and what you’ll be left with.
Government resources also offer pension calculators as well as many different financial institutions, all of which can simulate different saving scenarios that factor in contribution levels, retirement ages, and lump sum withdrawals.
Although you won’t find out what pension reforms will affect your retirement any faster using these calculators, the tools can help you to better understand how prospective changes could impact your earnings as you approach retirement age.
You can also use calculators to fine-tune your retirement by learning about how different contributions can pay off over time. Just remember to check back when any reforms have taken place to learn how they affect you.
Adapt Your Savings
Taking a more adaptive approach to your pensions can also help to make the forecasting of your retirement pots more predictable. Consider combining your pensions with other income sources, such as private savings, ISAs, and alternative investments like real estate. These all mitigate the risks associated with a less-than-clear picture for your retirement income.
Becoming more adaptive could be the key to mastering your retirement income, and if calculators show a shortfall following reforms, alter your monthly contributions or assess the merits of alternative tax-efficient savings or investment strategies.
You can also bear in mind that modelling a later retirement age can boost your retirement pot, and although very few people are willing to work longer than they need to, you can use your retirement data as a great means of keeping a consistent pension forecast as rules continue to change.
Don’t Rest on Your Laurels
The best way to accurately forecast your retirement income at a time when pension reforms are changing the playing field is to regularly review your strategy as things change. This provides you with as much time as possible to adjust your retirement plan and enjoy financial comfort without any unwanted surprises later down the line.
If you’re unsure of how to maintain your savings when pension rules keep changing, it may be worth checking your circumstances with a financial adviser, who can help to make sense of some of the more complex pension reforms taking place.
Planning for your retirement shouldn’t be an unnecessary cause for stress, and by taking on an adaptive approach, you can secure your wealth with confidence long into the future.