How to develop a secure retirement plan

In this article, Simon Cosgrove, Dental Regional Manager at Wesleyan Financial Services, shares his expert insights on how to develop a secure retirement plan...

How much is enough to retire on? It’s one of the most common questions that I’ve been asked by dentists over the years. Like many financial questions, the answer is ‘it depends'.

During their working lives, people settle into their own standard of living, usually based on their level of income. Having said that, although you may earn the same as someone else, it doesn’t necessarily mean that you share the same standard of living. 

When you retire, your income will almost certainly reduce, and it can be difficult to make the required adjustment to expenditure. A number of items of expenditure may cease, such as professional fees, but others may increase, such as holidays.

Types of expenditure

Everyone has two types of expenditure, whether they are working or retired: essential and non-essential.

Essential expenditure includes food and household bills, for example, and can be extremely difficult, or impossible, to reduce. Therefore, this expenditure is going to be a constant throughout retirement.

Non-essential expenditure tends to be lifestyle choices - for example holidays and eating out. It’s important to remember that what one person considers essential is not necessarily the same for someone else. A gym membership tends to be a good example of this.

Length of retirement

Once you know your planned level of expenditure, there are several variables that muddy the retirement planning waters. The first being, how long are you going to be retired for?

According to the decadal Census last carried out by the Office for National Statistics in 2021, the average life expectancy for a 60-year-old is 84 for men and 87 for women.

This means that if you retire at 60, there's a 50% chance you could be retired for 24 years if you're a man, or 27 years if you're a woman. It's important to note that these figures are averages. Individual life expectancy can vary based on health, lifestyle, and other factors.

Inflation

The next variable is inflation. Let’s take someone who retired 25 years ago in May 2000, and they needed a monthly net income of £3,000.

To support that level of expenditure in 2025, that same person would need their retirement income to have grown to £6,946 per month, due to inflation. Building inflation into an effective retirement plan is, therefore essential and often forgotten.

Of course, the early years of retirement are likely to be more active than the later years, so it could be argued that a higher income is more important in your 60s than in your 80s and that’s why it’s important to focus on planning your whole retirement and not just the first few years.

The Pensions and Lifetime Savings Association has created the ‘Retirement Living Standards’ report to help you estimate how much money you'll need in retirement. It outlines three levels of retirement lifestyles: minimum, moderate and comfortable. These give a clear idea of what kind of lifestyle you can expect at different income levels.

A minimum lifestyle covers basic needs like food, housing, and bills. A moderate lifestyle allows for a few extras, such as dining out and short holidays. A comfortable lifestyle provides more financial freedom, including regular holidays and the ability to replace your car every few years.

For a single person, the estimated annual costs are £13,400 for a minimum lifestyle, £31,700 for moderate, and £43,900 for comfortable. For a couple, the figures are £21,600, £43,900, and £60,600, respectively.

These amounts cover regular day-to-day expenses but don’t include extra costs like care or taxes, which should be factored into your overall retirement plan.

Pension options

When considering retirement income, the NHS Pension Scheme (NHSPS), from which many dentists will receive retirement benefits, provides a guaranteed income for life that automatically increases by the Consumer Price Index each year in payment, so providing protection against inflation.

However, the increasing prevalence of private dentistry over the years means that many dentists will find that the NHS Pension is providing a smaller and smaller part of their retirement income, therefore potentially reducing the inflation proofing of their retirement plans. 

Personal pensions are commonly used to supplement the NHSPS by dentists, and they always used to provide a lump sum and an annuity (a regular, guaranteed income when you retire, for the rest of your life). 

However, since pension freedoms were introduced in 2015, there are now more options in how you can access these pensions.

Annuities and lump sums are still available, and remain the right solution for many people, however the ability to access flexible amounts of pension funds over the course of a retirement can be advantageous in the right circumstances. You can find out more about how the NHS Pension Scheme compares to private pension options in this article.

As ever, the best course of action is to take professional advice, including cash flow modelling your retirement, to ensure that you’re not caught short during the longest holiday of your life.

Speak to the specialists

To start safeguarding your retirement, speak to a Dental Specialist Financial Adviser from Wesleyan Financial Services. Charges may apply.