What is retirement planning?

According to research by the Money & Pension Service, millions are heading towards retirement financially unprepared.

More than a third (37%) of those aged 50 or over are leaving their retirement planning until the final two years before they leave the workforce.

Their data also revealed that 69% of unretired people over 50 have done little to no planning around their retirement finances. Meanwhile, only 7% feel fully prepared financially.

But with the ever-increasing cost of living, retirement planning is more important than ever.

Retirement planning is an essential component of your broader financial planning strategy. It is the process of setting retirement goals and determining the steps needed to reach them.

Ultimately, a retirement plan is your roadmap to a financially secure future when you stop working.

Retirement planning for different generations

Different generations face their own set of unique challenges when it comes to retirement planning.

According to one report, Generation X (Gen Xers), those born between 1965 and 1980, are financially ill-prepared for later life.

Research from the International Longevity Centre (ILC) found that nearly one in three (30%) are at risk of not having enough saved by the time they reach retirement. The data also revealed that the majority (57%) want to save more but cannot due to other financial priorities.

For the generation that followed Gen X, it’s the same story, different challenges.

Millennials, those born between 1981 and 1996, have suffered from poor real pay performance. A report from Deloit found that 54% of millennials are living payday to payday.

The rising cost of living and other economic factors have made it harder to build wealth. This is something that is having an impact on millennials and their ability to generate enough savings for retirement.

It’s clear that both generations face challenges. However, this highlights the importance of planning and having a strategy that helps you overcome those challenges.

If you are a Gen Xer and want to know how you can better prepare for the future, read our guide on retirement planning for Gen X.

Alternatively, read our guide to retirement planning for millennials.

The benefits of starting to plan early

The goal for a lot of people is to retire a millionaire.

And when it comes to pension pot values, we often see that £1 million figure pop up.

Based on figures from the Retirement Living Standards report, couples wanting a comfortable lifestyle will need around £55,000 annually. And according to Moneyhelper, the average time spent in retirement is 20 years.

This would mean a couple would need a pension pot of £1,100,000.

Remember, the cost of retirement differs for everyone. However, retiring as a millionaire is certainly a goal most will want to reach.

To learn more, read our 7 Tips to Retire as a Millionaire guide.