Your Simple Plan For A Winning Retirement

We have a moral obligation to learn how financial planning works.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When Chancellor George Osbourne announced his pension reforms in this year’s Budget, part of the reasoning was to offer assistance to “responsible” savers, he explained. After saving for the best part of their working lives, these people no longer have to worry about getting a raw deal in the annuity market.

Allowing people to withdraw as much of their pension pot as they want, instead of being required to buy an annuity, should encourage more long-term saving. Many, however, don’t know how much they need to put away to see a reasonable retirement income from the age of 65.

Take care of yourself

There’s a gap between the sort of retirement people expect and what they’ll actually get. Financial planning is essential to our wellbeing, but all too few of us understand what it means.

Mention ‘saving, investing, interest and debt’ to the average person — is that a conversation anyone would like having? How about ‘security, stability, comfort or taking care of your family?’ People will willingly avoid anything to do with the former, while at the same time desperately seek the latter. They’re the same thing.

If you want a stream of retirement income for as long as you live, it starts with educating yourself.

It’s not too late

A worker in their 50s can expect to live until 80 and beyond. Rest assured, that’s more than enough time to ensure a happy retirement; but you have to act with purpose. To avoid a retirement nightmare, don’t put off saving any longer.

Because our time horizon is a few decades, what we’re actually talking is investing rather than saving. Investing is about planning an entire future. Saving is for holidays.

Retirement specialist Prudential suggests people retiring this year will need £120,000 and a full state pension to get them through to their 80s. How much, then, will you need to invest?

The retirement you want

Let’s say you’re 50 years’ old, have no debt and earn £40,000 a year. Our expected return on investment is 5% (roughly what UK shares have delivered over time). You’ll need to invest 15% of your income, or £500 a month, to retire at 65 and receive the average expected annual income.

Thanks to the power of compounding, your £500 per month could be worth £130,000 in 15 years. That’s not to say that there won’t be any hurdles, but you’ll be on the right track

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »