Why is financial planning for retirement vitally important?

We all know financial planning can be hugely beneficial for our lives. Having your financial affairs in order can benefit just about every aspect of your life, especially when it comes to safeguarding your future. With that in mind, why is financial planning for retirement vitally important? Here, we speak to Chartered Financial Planner, Daniel Frampton to discuss the various reasons why financial planning is critical to a successful retirement.

The current retirement landscape

Do you know how much you need to live comfortably in retirement? 

Of course, that is a highly subjective question that only you can answer based on your lifestyle. However, to give you a benchmark, the Department for Work and Pensions’ latest figures suggest that the average weekly income for pensioners in 2022 was £349 (or £18,148 per annum) after taxes and housing costs were deducted. For pensioner couples, that figure rose to £515 and for single pensioners, it was less than half that figure at £239.

With the full rate of the new State Pension amounting to £203.85 a week, the average retiree will need to supplement their State Pension income through a combination of private and occupational pensions, investments, savings and employment – or, as is often the case, a combination of all these factors. Ensuring you will have enough funds in retirement calls for careful financial planning to ensure you are covered for all eventualities.

Reasons to undertake financial planning for retirement

Speaking of “all eventualities,” here are just some of the many reasons you should undertake financial planning for retirement. With an effective plan in place, you can remain one step ahead; whatever life throws at you.

Maintaining quality of life

Retirement marks a significant shift in income, as you will typically be reliant on savings, pensions, and investments rather than employment earnings. Proper financial planning ensures that you can maintain your desired lifestyle and cover expenses without relying solely on the State Pension or assistance from loved ones.

“One of the biggest concerns for many of us is whether or not we can maintain the quality of life we’ve become accustomed to in our working lives into retirement,” said Daniel Frampton, Chartered Financial Planner at Acumen. “However, with some considered financial planning, there needn’t be too much of a drop-off in living standards once you retire. Especially if you can pay off your mortgage and plan pensions and investments effectively.”

Inflation and rising costs

Inflation erodes the purchasing power of money over time. Without adequate planning, you may find that your savings don’t stretch as far in the future due to increasing living costs. Effective financial planning takes inflation into account and ensures that savings and investments grow sufficiently to keep pace with rising expenses.

“Inflation is a natural fact of life,” said Daniel. “It’s one of those things that we rarely notice until it begins eroding our wealth and savings. But when you enlist the services of a financial adviser for retirement planning purposes, you gain peace of mind that any inflationary rises are mitigated by a host of financial planning techniques. When combined, these will ensure you won’t be left out of pocket due to economic forces out of your control.” 

Living longer than expected

With advances in healthcare and technology, people are living longer. While this is a positive development, it also means that retirees need to plan for potentially decades of living expenses. Financial planning helps to ensure that you don’t outlive your savings and have enough resources to support yourself throughout your retirement years.

“The UK has an ageing population and plenty of studies have shown that people often underestimate their life expectancy,” said Daniel. “Of course, none of us have a crystal ball to tell us exactly how long we will live, but careful financial planning that errs on the side of living longer than we perhaps expect can help to ensure we have enough funds going into later life. This is sound logic as health improvements are being made all the time.” 

Long-term healthcare costs

There is a natural acceptance that as people age, healthcare expenses tend to increase. Residential care costs in particular can significantly impact your overall retirement finances. Therefore, it is imperative to factor these potential costs into your retirement planning to ensure you have sufficient funds to draw on later in life.

“Speaking of healthcare,” Daniel continued. “Despite modern advancements, ageing and age-related illnesses are something that will affect us all at some stage. In later years, there may come a time when you need the extra assistance that comes with residential care.” According to Age UK, the average care home costs £800 a week while nursing home fees are around £1,078 a week. “Planning ahead can ensure you’re able to afford these costs.”

Unforeseen circumstances

Life is unpredictable, and unforeseen events such as illness, disability, or the need to support family members financially can often arise. Effective financial planning includes building emergency funds and insurance cover into the financial mix to mitigate the impact of any such events on your retirement savings.

“Life happens as they say,” continued Daniel. “As with all financial planning, having a rainy day fund in place or at least enough different savings and insurance vehicles that you can pull on should you need to is essential. That’s where the help of a financial adviser can help you to plan for just this type of eventuality.”

Market volatility

Investments are subject to market fluctuations, which can naturally impact your retirement savings. Just as investments have a chance to grow, they can also wane when markets crash. Proper planning involves diversifying investments to reduce risk and adjusting strategies over time to adapt to changing market conditions.

“Just like inflation, market volatility is an undeniable fact of life,” said Daniel. “We can’t control market fluctuations, much less predict them. However, given enough time and diversification, we can smooth out the effects of fluctuating markets over the longer term. Once again, it all comes down to meticulous planning.”

Estate planning

Of course, many of us want to leave a financial legacy for our loved ones or support charitable causes after we have passed away. Effective retirement planning includes making provisions for estate planning and passing down your wealth to your beneficiaries to ensure your assets are distributed according to your wishes.

“Estate planning is all about making sure the right amount of money goes to the right people at the right time when you die,” said Daniel. “Astute financial planning can help you to achieve your estate planning goals, ensuring that your loved ones are properly cared for and that IHT doesn’t overly erode the value of your estate.”

Financial advice for retirement planning at Acumen

Financial planning for retirement is essential to maintain your financial security, preserve your quality of life, and help you achieve your personal goals during your well-earned retirement years. It involves careful consideration of a wide range of factors such as income, expenses, inflation, healthcare costs, and potential unexpected events to ensure that you can enjoy a comfortable and fulfilling retirement.

Undertaking financial planning could be the best investment you ever make. At Acumen, our team of independent financial advisers and chartered financial planners are here to help you with considered, unbiased advice to help you reach your retirement goals. 

Together, we can ensure that you plan for all of life’s unexpected twists and turns as thoroughly as possible, so you and your loved ones are financially secure, no matter what happens.

Contact us today on 0151 520 4353 to arrange a consultation.