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How to ensure you have enough money for retirement.

An enjoyable and relaxing retirement is what most people spend their working life waiting for, but how does anyone know they have enough saved up to make sure that dream becomes a reality?

This has always been a prominent concern for those reaching their twilight years, but with life expectations now far longer than they have ever been and the recent changes to the pension system it is now a far more worrying question than it has been for other generations. Nevertheless, to break it down more easily, retirees should divide their prospective costs into four manageable categories, essential income needs, known costs, unknown costs and legacy. It is far easier to manage one’s retirement income if it is no longer viewed as a homogenous block and therefore lets run through the different categories

Essential income needs

As it names suggests, this categories relates to all of a retiree’s most basic needs such as paying the bills, buying groceries or even paying off a mortgage.

Given that information, savers should only use very low risk assets as their propensity for loss should be much lower here. These assets could include bonds and other defensive securities, rather than equities. Investors may even wish to consider using part of their pension savings to purchase an annuity, which is a series of equal payments at regular intervals spanning the rest of an individual’s life to help provide the certainty of meeting these income needs as the income they produce will last as long as you live.

Known and unknown costs

Known costs include lifestyle choices, holidays and events. You can think of this category of what you really want to do when you retire, whether this is to travel the world, spending an inordinate amount of time on the golf course or to put the grandchildren through education.

For this category, investors can afford to take a higher degree of risk than for essential income needs as they may need to grow their pot of savings in order to pay for these lifestyle choices over time. The types of investments they may wish to consider include absolute return or multi-asset funds which generate their returns from a diverse range of securities.

In terms of unknown costs, these relate to out of the blue payments such as potential hospital bills or an unexpected breakdown. Again, investors can afford to be medium risk for this bracket but may want to build up a six-month cash buffer from their overall savings to make sure they can access those funds easily.


Legacy, while relatively sombre, relates to the assets you leave behind for your loved ones.

Given people are generally getting older, investors can afford to take a higher degree of risk initially as these savings may not be needed for another 25 to 30 years. As a result of this, investors can afford a higher degree of equity exposure. Over time they will need to consider reducing that risk.

The past is, of course, no guide to the future but the FTSE All Share index has returned 1,433.70 per cent over the last 30 years so if an investor had put 10,000 into the market, they would have since seen a gain of more than 151,000 today.

Investors should sit down with their children to discuss this, however, as any such planning will not only affect the long term value of a potential inheritance but may help their children with their own savings planning.

As always seek advice where appropriate from a qualified and regulated financial adviser.