Let’s start by easily debunking some of the usual tips you might get or read to answer the question “how do I work out how much I need to retire?”

As suggested, they are easy to debunk.

Take this one: you need to have built up, in pensions or similar type of investments, 20 times your retirement income requirement.

So if you decide you want £25,000 per year in retirement, this suggests you need £500,000 in ‘value’ from pensions etc. at the point you move into retirement.

Another one is you need to save from your current income, your age minus ten in percentage terms. So if you are age 25, save 15% of your salary or income; age 45, save 35% and so on.

In both cases you will be able to find variations galore on such formulas and simple solutions, even a relatively quick look around the web would produce such an overview.

The fact is any such ‘red sky at night, shepherd’s delight’ approach is going to be an unsatisfactory way to plan for retirement.

Here’s why…

Retirement planning is complex and, more than anything else, unpredictable, it is highly circumstantial and subject to an array of forces.

Forces such as your health, the economic  backdrop over many decades, changing legislation, inflation, investment returns, levels of taxes, state rules regarding pension payments and levels, technology and the environment. That list is not the entire list, just an indication of all the things that could bear down on your retirement planning and how it pans out.

Two neighbours with broadly similar-looking situations could have very different retirement needs. For example, one may be on a second marriage to a younger spouse and have three children who will all need financial help, the individual may have a history of ill-health, whereas their neighbour only has one child (who is financially independent), is in good health and stands to inherit a significant sum from parents.

Those neighbours will need very different planning approaches to their retirement years.

The key to successful retirement planning is a bespoke  ‘mapping’ exercise which looks at the specific circumstances of the individual, their family situation, their wishes and goals. The map can then be created, probably using long-term cash flow and expenditure forecasting software, to see how their retirement position is predicted to look based on a range of possible scenarios.

Those scenarios will change as different assumptions are made towards the variable factors mentioned above, such as different possible retirement ages, different investment returns, inflation rates and so on.

The software can be used to view what happens when different assumptions are plugged in. This then produces a picture of the most important things that will influence outcomes. Once this mapping has taken place, the scenarios viewed and the picture created, then the planning decisions towards the most effective means of tackling this can then be formed.

Using this approach to work out how much you need to retire becomes much more sophisticated AND is totally tailored to your individual position.

This requires investing in time to work through the exercise, getting access to excellent software to support it and have expertise to understand how to build plans off the back of the results produced. An Independent Financial Adviser will have the right set of skills and experience to help you with this and that can make a huge difference to your long-term prospects and prosperity.