How do I plan for retirement?


Benjamin Franklin said, “By failing to prepare, you are preparing to fail.”

Considering the life-altering implications of retirement, it would be reasonable to expect that thorough planning would be the norm. My experience, however, is that the opposite is often true.

So, what can be done to prepare for retirement?

The key is to try and get a picture of what your retirement might look like.

From the outset, it is important to understand what level of income you will require after tax in today’s terms, or looking at it from another angle, what your outgoings will be. This can be established by adding together fixed and discretionary outgoings, with the latter including holidays, clothing, gym and golf memberships, food, etc.

At the same time, you need to understand what resources you have so as to provide you with an income. This could come in the form of pensions, which could be Defined Benefit and/or Defined Contribution, plus investments and/or savings.


If you cast your mind back 10 or 15 years and think about how much something you spend money on now would have cost then – double, more? Taking that same item, how much will it cost during your retirement? Whilst we don’t know what the rate of inflation will be in the future, we use sophisticated software to apply expertly sourced inflation assumptions to your outgoings and where appropriate, your income.

Don’t forget your State Pension

The value of the state pension should not be overlooked as this forms a critical part of a retirement income for nearly all retired households and it would certainly be missed if it was not there. Did you know you can top up your State Pension to the full amount by buying extra years if you don’t have enough qualifying years? At the moment you can buy missing years dating back to 2006 – but you’ve only got until April 2023 to do this.

How you can see your retirement mapping out

The trickier part is then visualising how your various money sources will support you. This is where a cash flow model is invaluable. Using your already established income streams, along with your anticipated future expenses, a cash flow modelling system can be used to map out your financial position going forward.

This isn’t a guarantee of course, and the information used will be based on assumptions and past performance, but what it will do is allow you to more clearly visualise your future income stream, as well as work through various scenarios, such as retiring early, so as to see the impact that this will have on your finances. Furthermore, forecasts can also incorporate “stress tests” so as to understand the impact falls in markets can have on your holdings, and to see if these could be a threat to your longer-term financial security.

It’s also important to establish your risk outlook and loss tolerance so that a long-term investment strategy can be established.  Once the costs of advice and fund management are factored in, along with assumptions for inflation, this then provides a far more tangible outlook for your future financial plans and allows you to estimate how much you’ll need, how long what you have will last and how to plan your spending going forward.

It is important to understand that cash flow modelling is not a one off and is not used only at retirement. It can be used to help establish what level of savings you should be making and how realistic your retirement plans and targets are.

As chartered financial planners, Armstrong Watson Financial Planning & Wealth Management, work with you to build your retirement plans and regularly review these so you know if you will remain on track. Our use of cashflow forecasting allows you to understand your plan more easily so you can make informed decisions.

For more information or advice, get in touch with one of our financial planning team on 0808 144 5575 or email

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