Thinking in decades: planning for later life

Retirement planning is one arithmetic question asked early enough to do something about: what income do I want, and what will produce it?

Start with the income, not the pot

Estimate the annual income you would want in today's money. A common starting point is a replacement rate of roughly two thirds of pre-retirement income, on the basis that commuting, mortgage and pension contributions have usually stopped. Then subtract the state pension you expect. The remainder is what your own pensions and savings must produce.

Four levers, and only four

1. Contribute more. The most reliable lever. 2. Work longer. Extra years add contributions and remove withdrawal years - it is doubly powerful. 3. Take more investment risk - which raises expected returns and the range of outcomes. Appropriate early, less so near the end. 4. Spend less in retirement. The lever nobody wants, and the one that quietly does the work if the others are ignored.

How pots become income

Drawdown keeps the pot invested and you withdraw as needed: flexible, inheritable, and it carries the risk of running out. An annuity exchanges the pot for guaranteed income for life: secure, usually irreversible, and the rate depends heavily on when you buy. Many people use both - an annuity covering essentials, drawdown for the rest. Rules and tax treatment vary sharply by country.

Housekeeping that pays

Track down old pots. Consolidation can reduce charges and make the total visible - but check first for guarantees, protected retirement ages or exit penalties, because these are occasionally worth more than the fee saving.

Where advice becomes necessary

Decisions about transferring a defined benefit pension, buying an annuity, or drawing down in a tax-efficient order are high-stakes and often irreversible. mySal explains the mechanics; a regulated adviser should sign off the decision.