What are the 7 steps in planning your retirement?

The 7 steps in planning retirement are:

Deciding how you’re going to plan
Working out how much you spend
Getting your state pension forecast
Gathering information on your pensions, savings and investments
Establishing the best way to structure your income
Ascertaining the biggest risks to your retirement
Reviewing your plan regularly

There’s plenty more that goes into it, but if you nail these 7 steps, your plan should be in good shape. Let’s break down each step in more detail.

1. Decide how you’re going to plan

The first step in planning your retirement is deciding how you’re going to do it.

You don’t need to have this set in stone straight away, but it’s good to know your options before you start, and what these could look like.

There are 3 ways to plan your retirement:

Wing it – this isn’t really planning at all, and you’re generally just hoping that you’ll have enough to get by, and can adapt to your situation if you need to.
Plan it yourself – spreadsheets or a good old pen and paper can go a long way, and if you do it right, the benefit here is that there is no cost (other than your time, and the risk you’ll get it wrong).
Use a Financial Planner – this is the sure-fire way to retirement planning. With the i’s dotted and t’s crossed, you can relax in retirement with the confidence to spend what you know you can afford – but, it costs money.

By the end of this article, you may know which option you’ll choose – but if you don’t, it’s OK if you come to the realisation once you start your planning process. It’s good to be flexible with your plans.

2. Work out how much you spend

This is arguably the most important – and most difficult – step in planning your retirement.

Most people underestimate the amount they spend unless they really get granular with analysing their spending data.

This is why it’s important to be thorough, honest, and accurate in this step.

Start by looking at your fixed bills: council tax, utility bills, phone and internet contracts etc. Although these may change when you stop working (you might spend more time at home with the heating on when you’re not working), they should give you the core of your spending.

Then, look at your bank statements – and if possible, use banking apps to categorise your spending and take out some of the heavy lifting. The bigger your data sample, the better, and we suggest using at least a year’s worth of spending history to account for things like Christmas, Birthdays, holidays and other ad hoc expenditures.

3. Get your state pension forecast

Great – an easier step! This is pretty straightforward: you can request your state pension forecast from the government here.

This will tell you whether you’re on track for the full entitlement, how much you’ll get, and when it will start. Your state pension can form the backbone of your retirement income, so it’s really important to have a solid understanding here.

If you’re falling short of the full entitlement, the DWP will often allow you to top up previous years’ contributions to get you back on track – it’s usually very good ‘value for money’ to do this if you can afford to.

4. Gather information on your pensions, savings and investments

You’re going to need a clear picture of what you have that can be drawn on for income throughout your retirement. This includes any SIPPs, Defined Benefit pensions, investment accounts, savings accounts, bank accounts, shares, insurance policies, and even large assets like vehicles or valuable jewellery.

Get up-to-date information and valuations for all of these potential income sources throughout your retirement, and get them organised in a spreadsheet.

Top tip: the Grettel service can help you find lost pensions, shares, and other assets that you’ve held in the past.

5. Establish the best way to structure your income

This part is also complicated: it’s going to depend on a multitude of factors:

Tax-efficiency: you’ll need to plan around income tax as a priority, but also think about any capital gains tax liability your assets hold, and potential inheritance tax considerations for when you die.
Gaps in your income: if you need more from your private pensions and investments before your state pension kicks in, how are you going to account for it?
How much do you need in cash reserves and emergency funds?
Are there any investments you want to leave ‘untouched’?
Have you factored in care costs and how your income needs may fluctuate throughout retirement?
Are there any other big ad hoc costs, like a child’s wedding or a retirement cruise you have your sights set on?

6. Ascertain the biggest risks to your retirement

What are the biggest risks to your retirement, and what does the ‘shape of your money’ look like?

What we mean by this, is what does your net worth look like throughout retirement – is it going down year on year? Is it going up thanks to investment appreciation and a higher income vs expenditure? Or is it fairly level?

If it’s going down – what are the risks of you running out of money? Will you need to downsize, release equity from your house, or reduce your spending to stay on track?

If it’s going up – that’s great, but are you making the most out of your income, and could you perhaps be living a better lifestyle than you’ve allowed yourself? Remember, you’re retirement can be some of the best years of your life!

If it’s staying level – this is a good place to be, and could be the ‘sweet spot’. But think about what flexibility you have and run through some ‘what-if’ scenarios, such as booking that luxury cruise, having to stop work earlier, or living longer than you expected!

7. Review your plan regularly

While you are planning, you’ll probably come to realise that you can’t get things 100% accurate. So, the importance of reviewing your plan, at least annually, can’t be understated. That’s how it works in the professional financial planning world – and for good reason.

This includes checking in on your income vs spending levels, whether your tax efficiency strategy is still on-point, and whether your investments are still in line with your objectives – perhaps you need to reduce risk, or even take on some more.

Needless to say, this is also a chance to account for any big changes that may have happened in the year, from an inheritance windfall to needing a new boiler – you have to be flexible and reactionary with your planning!

Next Steps

The safest option – and the one that’ll give you that peace of mind you’re probably looking for in your retirement, is working with a Certified Financial Planner.

If you’d like to book a free consultation with an adviser who’s truly dedicated to understanding you, your ideal retirement, and how to get there – get in touch today.

What are the 7 steps in planning your retirement?