The Retirement Forecast report is split into three main parts:
The main data and assumptions that have been used to create the report
The results of the analysis shown in chart form
Shortfall analysis indicating what changes could be made to improve any calculated shortfall
We will look into each of these sections a bit more below using a fictional report for Joe Bloggs.
Data & Assumptions Page
Data and Assumptions Page.pdfThis page simply shows what data was inputted into the calculator and the main assumptions used.
It starts with your personal details and your retirement goals. In this example the goal is to retire at age 65 with a net annual income of £20,000 which increases each year in line with inflation. We are also using an end date of life expectancy (from the Office for National Statistics) plus 5 years.
We can then see the details of Joe's existing pension and current contributions from both him and his employer. The forecast assumes investment growth of 4.5%pa and charges of 1%pa, and that Joe will use Flexible Access Drawdown to take his retirement benefits.
Joe has a full State Pension entitlement and we've assumed a 2.5% increase to this as it is the minimum figure from the State Pension "triple lock".
Finally we can see some basic underlying assumptions such as inflation (CPI & RPI) of 2%.
Results
Net Income vs Expenditure
Income v Expense Page.pdfThe first results page shows whether or not Joe is going to have enough income/savings in retirement to provide him the the level of income that he wants. The only guaranteed income that Joe has is the State Pension which you can see (Green/Teal bars) starting at his State Pension Age of 68. However, his expenses are shown by the orange line which is much higher than the State Pension alone.
Therefore the report has made withdrawals from his pension (both light and dark blues line) to make up the difference each year. N.B. The light and dark blue bars are both withdrawals from the same pension but are seperated as they are treated differently for tax purposes.
We can see from this page that at age 85 the withdrawals from Joe's pension stop and he no longer has enough income/savings to meet his expenses. The red bars show this shortfall.
Projected Values
Values Page.pdfThe second chart show the projected value of Joe's pension over time. You can clearly see the value rising as Joe is still working. This is due to the investment growth and to Joe and his employer contributing into the plan.
Once Joe retires the value starts to fall due to having to withdraw from the plan to meet his expenses, dramatically so in the first 3 years before Joe reaches State Pension Age.
We can see here why the withdrawals stop in the previous chart at age 85. Joe's pension has been fully depleted and has no remaining value.
Shortfall Analysis
Shortfall Analysis Page.pdfThis page shows what actions could be taken that would address the shortfall, shown in the results, assuming that all other data nad assumptions were correct. The report usually shows 4 options to address a shortfall:
Retire later - This would lesson the amount of withdrawals in the early years as well as adding extra contributions and investment growth.
Aim for higher investment growth - by increasing the investment growth the pension value will be higher at retirement meaning the pension would last longer.
Reduce retirement income - By reducing the amount of income taken the pension value will last longer.
Increase contributions - Increasing the amount that you pay into your pension could have a significant impact on the value at retirement and beyond.
