Is my pension pot on track?

  • Leanne Lancaster
  • 05 June 2023
  • 5 mins reading time

As you approach the age of retirement we believe it becomes crucial to evaluate whether your pension pot is on track to provide you with a comfortable life after you’ve finished work. Taking stock of your financial situation and making adjustments if necessary can significantly impact your retirement years.

So what are the key steps you can take to assess the health of your pension pot so that you can make informed decisions about your retirement?

1. Gather relevant information

Begin by collecting all the necessary information related to your pension plan. This includes pension statements, projected retirement benefits, contributions made, and any additional retirement savings you may have. Obtaining a comprehensive overview of your financial situation will be the foundation for assessing how adequate your pension pot is, or is not, as the case may be.

2. Understand your pension scheme

Take the time to familiarise yourself with the details and terms of your pension scheme or schemes. Review the types of pension plan you may have (e.g., defined benefit or defined contribution) and the specific rules and benefits they offer. Gain clarity on the retirement age, contribution rates, and any other factors that might impact your pension income.

3. Calculate your retirement income needs

Give some thought to the type of lifestyle you want to enjoy when you retire, to allow you to determine the income you will require to sustain it comfortably. Take into account factors such as housing costs, healthcare expenses, leisure activities, and potentially unforeseen events.

Financial planners can use cash flow modelling as a tool to assess your current and forecasted future wealth. They do so by matching expected income during your lifetime with expected expenses. In simple terms, a cash flow model is a year-by-year forecast of your money coming in, your financial outgoings and the resulting balances.

4. Evaluate your current pension pot

Compare your projected retirement benefits with your income needs. If the two figures are not aligned, it may be necessary to make adjustments to ensure a more financially stable retirement. Analyse whether your pension contributions, investment returns, and growth are sufficient to meet your retirement goals. This is where the experience and knowledge of a professional financial adviser could hugely benefit your retirement planning.

5. Review your investment strategy

Assess the performance of your pension investments and consider whether they are generating satisfactory returns. Diversifying your investments across various asset classes, for example, bonds, shares or property, can help mitigate risks and optimise growth potential. It might be appropriate to rebalance your portfolio based on your willingness and ability to accept risk along with the amount of time your investments will be held. Again, choosing to consult with a financial adviser could help to ensure that your investment strategy is aligned with your retirement objectives.

6. Consider additional contributions

If your pension pot falls short of your desired retirement income and you’re in a financial position to be able to do so, explore the possibility of making additional contributions. Some pension schemes offer options for catch-up contributions or voluntary top-ups. Take advantage of any employer matching programmes or tax benefits available to bolster your retirement savings.

7. Explore other retirement income sources

Besides your pension, consider other potential income sources in retirement. This may include personal savings, Individual Savings Accounts (ISAs), annuities, or rental income, for example. Having a diversified income stream can help provide additional security and flexibility during your retirement years.

8. Regularly review and adjust

Revisit your pension pot’s progress periodically, ideally annually, to ensure you remain on track. Life circumstances and financial goals can change over time, necessitating adjustments to your retirement planning strategy. Stay informed about pension legislation updates and any changes to your pension scheme’s rules that may affect your benefits.

Checking whether your pension pot is on track for retirement is an important step towards financial stability in your later years. By assessing your pension scheme, understanding your retirement income needs, and making informed adjustments, you can better position yourself for a comfortable retirement.

Seek professional guidance whenever necessary and make retirement planning a regular part of your financial management to work towards enjoying the retirement you deserve.

Important information

Any views expressed are our in-house views as at the time of publishing.

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or part) without our prior written consent.

The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment.

There is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.

The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.

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