When you reach retirement, it’s likely that your income is going to fall compared to your working life. Suddenly, you’ll go from receiving your salary or taking proceeds from your business each month to drawing funds from your pension, investments, savings, or elsewhere in order to live your desired lifestyle.

As a result, it’s important to know how much you’re going to need to accrue throughout your working life to support yourself when you finally stop working.

Worryingly, research shows that many savers overestimate how much retirement income they’ll have, potentially putting them in a precarious position when they start to use these funds.

So, find out why overestimating your retirement income could seriously damage your ability to achieve your future goals, and what you can do to ensure you have an accurate picture of yours.

Savers overestimate their retirement income by 30%

According to a study carried out by interactive investor and reported by FTAdviser, people tend to overestimate their likely retirement income by almost one-third (30%).

The average income for over-65s is £16,540, the research found, yet individuals expect to have £21,730 a year to live on in retirement.

Meanwhile, younger savers expected to have annual income of around £25,000, nearly 50% more than the real figure.

The study also discovered that 61% of people have no idea what their income will be, with just 11% knowing what money they will have available.

Spending too much too soon could leave you with a shortfall

The major risk of overestimating your retirement income is that it could leave you with a shortfall in later life if you overspend in the early years of your post-work life.

While you may see returns generated on some of your invested money, your pensions and other savings are ultimately finite. So, without working out what you’ll have and how much you’ll need, there’s a danger that you’ll use too much of your money early on in retirement.

In just a few short years, this could see you having to compromise on your lifestyle because you didn’t properly organise your finances beforehand.

The impact of this will vary from person to person, but some outcomes that this could lead to might include:

– You can’t afford luxuries such as to travel, go to certain restaurants, or whatever else you wanted to do in your golden years

– In the event that you need long-term care, there’s less money available to fund it

– You’re unable to pass on as much to your beneficiaries as you would have liked, or to cover funeral and associated costs.

Presently, these considerations might not seem that important. But if you reach any of these moments and don’t have the funds available, you’ll likely be disappointed at best and unable to achieve your life goals at worst.

Setting goals for your future can help you accurately work out what you’ll need

So, this leaves you with the big question: “how do I avoid overestimating my retirement income?” After all, while the average retiree’s income is £16,540, this isn’t a fixed figure that will apply to everyone, especially if you’re accustomed to a particularly affluent lifestyle.

The answer is in careful financial planning, and that starts with working out what your personal goals are for your retirement.

These targets will be entirely personal to you, and could range across:

– Going on a cruise to experience as much of the world as possible

– Buying a sports car that you’ve always wanted

– Playing golf at every top-ranked course in the UK.

The key here is that whatever you want to do, you’ll be able to calculate what it costs to achieve it. Once you combine this figure with an estimate of your basic lifestyle costs, such as food and bills, it can be far easier to accurately work out how much retirement income you’re going to need.

A financial planner can model different scenarios for you

When it comes to setting goals and calculating your prospective retirement income, there is perhaps no better solution than to work with a financial planner.

A planner will look at all your goals and all your sources of income to produce a bespoke financial plan, ensuring that you have the income you need in later-life.

There are also many variables at play when making these decisions. Certain economic conditions can cause market volatility, temporarily reducing the value of your pensions and investments. Or you may simply change your mind about some of your goals, deciding that you actually have different life ambitions.

No matter the variable, your planner can build these elements into your plan, showing you assorted scenarios of what your wealth will look like.

This kind of forward planning can give you the ultimate confidence that you have sufficient retirement income, regardless of what happens around you.

Get in touch

If you’d like help planning for the retirement you want, get in touch with us at Cordiner Wealth.

Email hello@cordinerwealth.co.uk or call 0113 262 1242 to speak to us today.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.