Essential Steps to Secure Your Ideal Financial Future

When you look into your future, what do you see? It’s a broad question, but nonetheless one to which you likely have an answer – begrudging as that answer may be. Another question: when you look into your future, what do you want to see? There is, no doubt, a severe incongruity between the future you see and the future you want to see. The former is likely a view of working to retirement, of saving what you can and making the best of an unpredictable career path. The latter is likely something a little more luxurious.

It’s work that clouds our vision of a better future, and, ultimately, money that creates the freedom we want for our later life. It is no surprise that increasing numbers of people are interested in the fast-growing FIRE movement. That movement does not need to define your next movements – but know this: you have the capability to take your own financial future into your hands, beyond bunging a few hundred pounds a month into a low-yield savings account. If you’re interested in seeing the future you want to see, read on.

Define Your Retirement Lifestyle - Not Just Your Number

One of the bigger mistakes people make in planning for their future is setting a hard number to ‘reach’ by way of savings and investments. The idea, naturally, is that reaching this number will entitle you to the retirement you deserve – but a goal like this is hollow without some serious planning behind it. One of the simplest ways to illustrate this point is with inflation; £1 million is not the same marker of wealth as it was in the 1990s, and will be even less so by the time you retire.

The real solution to planning out your retirement finances is to budget everything. Don’t pick a number; pick a year. When do you want to be ‘free’ by? How many years of living do you expect to enjoy after that date? How much will you need to feed yourself? Do you have any bucket-list travel plans? All of these and more factor into the finite amount of money on which you need to live after retirement.

Balance Investment Risk with Time Horizon

Saving for retirement is, ultimately, a war of attrition. It requires you to weaponise the powers of compound interest as well as you can, while balancing risk against accumulation. The younger you are, the more risk you are able to take – there are more years for you to soak up losses, and there’s fundamentally less money to lose.

As you approach retirement, though, your investment strategy needs to shift from maximum growth to preserving your gains. For most, this means gradually de-risking your portfolio to protect the gains you've made while retaining enough growth potential to outpace inflation. This is a difficult but necessary balance to achieve, and one that would benefit engaging wealth management experts who can provide sophisticated, holistic advice tailored to your entire financial picture.

Stress-Test Your Decumulation Strategy

It’s not enough to figure out your retirement plan in advance – you also need to have a solid decumulation strategy. Decumulation is the act of retrieving the money you’ve saved for retirement, from a pension or from other financial vehicles – and without the right planning, it could cost you considerably in tax. For instance, if you intend to withdraw your pension as a lump sum on retirement, only 25% of that lump-sum will be tax-free. With careful planning and understanding, this is money you can keep.