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Take aim and hit your retirement target

Ed Monk

Ed Monk - Fidelity International

Setting ambitious but achievable targets is often how we get most of the important things in life done. That’s also true when it comes to our finances, particularly when the success of our long-term saving goals - including the ability to retire when and how we want - depends on careful planning and saving throughout your working life.

Setting goals doesn’t have to be a complicated task. You already know you need to save, and you know you’ll need to use those savings to fund your retirement. But how can you begin to put some numbers on the amounts you need to be putting aside? Here’s how to set the target you need to hit your financial goals.

Find your bullseye

To draw up your target, it’s first useful to understand the factors likely to affect your success in hitting it. Understanding the amount you need to save - be it through lump sums or regular savings - is crucial. But so too is the length of time you give yourself to save.

When saving and investing for retirement, it makes sense to give your investments the longest possible time to grow. If you can start saving earlier and delay retiring for longer, it’s likely to improve your chances of savings success. Although be aware that withdrawals from your pension savings will not be possible until you reach age 55 (the government is proposing to increase this to 57 from 6 April 2028).

You also need to consider the level of risk you are willing to take with your money. When it comes to your workplace pension, you may be invested in the default investment option or you may decide to ‘self-select’ the funds yourself from the range available through your pension plan.  Whether you choose your own funds or stay with your plan’s default investment, it’s a good idea to understand the risk of your investments and review your pension savings on a regular basis, to make sure they’re right for your retirement goals. Just remember the value of investments and the income from your investments can go down as well as up so you may get back less than you invest.

Finally, what expectations do you have for your lifestyle in retirement, and how much will you rely on savings to fund that? Reproducing the same level of income in retirement as you enjoy during your career is a nice idea, but might be difficult to achieve. You also might need less income in retirement than you did when working. You won’t have work related costs, like commuting, and you won’t be saving into your workplace pension. Understanding how much you’ll need in retirement will help you bring your targets into focus.

Our MyPlan tool is a useful way to see how different factors affect the amounts you may need. It’s an online projection tool that lets you enter details like your age, current savings, contributions and investment mix to let you know if you are on track to meet your targets. You can tweak the details to see the effect it has on your projected pot at retirement. Although please be aware that our tools are only for guidance and should not be solely relied upon.

Improve your chances

If you are intimidated by the amount of money you may have to save, don’t worry. Your goals are designed to provide you with a plan of action and there’s plenty you can do to push things in your favour. 

Fidelity has produced some retirement savings guidelines to help give you an idea of how much you need to have saved at various ages in order to retire at with no material fall in living standards. They show that a 25-year-old person would need to save 13% of their salary, with contributions then rising in line with their wages, in order to retire at 68. The percentage you need rises the older you are when you begin saving.

If you think you will struggle to save that amount, consider how you can build up your savings over time. One way is to time increases your savings with any pay rise or promotion that might come along. For example, if you get a 3% pay rise one year, keep 2% of it - it’s important to feel like you are progressing and earning more each month - but divert the remaining 1% into extra long-term saving. That way, you’ll be increasing your savings over time but without feeling a big hit to your income.

Look past volatility

If you are not used to thinking of yourself as an investor, volatility in the markets can feel uncomfortable. By setting targets for your saving and sticking to your plan, however, it can make it easier to ride out bumpy patches.

We understand that this may be unnerving, but you should bear in mind that pensions are a long-term investment. Over the years, markets have faced considerable challenges but in the longer term we have typically seen them rebound from periods of volatility. On the other hand, it’s important to remember that past performance is not a guide to what will happen in the future.

Where the situation gets more complicated is when you don’t have years to wait for a recovery and then further growth – or, in other words, if you are getting close to retirement. In this situation and indeed at all stages of retirement saving, it can pay to consider where you are investing.

If you are unsure about whether your investments are suitable for your particular circumstances, or you need advice on any of the options available to you, we recommend that you speak to an authorised financial adviser.

Stay engaged

Once you’ve drawn up some broad targets for your savings, it is important to keep tabs on your progress so that you can correct your course of action if needed.

Your priorities, ability to save or even attitude to risk can change over time so by keeping in touch with how much you’ve saved you’ll be more likely to see if you’re on track. Maybe you can save more or tweak investments to better suit your goals - you’ll only know if you are in touch with the progress you’re making.

Take the next step

Visit Fidelity’s PlanViewer to view your savings and investing progress in one place. You may not want to check-in everyday - in fact it can be unwise to obsess about daily movements in your pension value - but consider logging in at regular intervals to ensure you’re on track with your financial goals.

Important information: This information is not a personal recommendation for any particular investment or course of action. If you are unsure about the right approach for you personally, you should speak to an authorised financial adviser of your choice.