Retirement can be a wonderful time in your life if you have the time and money to enjoy it, but how do you know if you will have enough? If you have an employee pension that can be a big help.

The key to retirement planning is to be realistic in your assessment of what you need, and what you have saved or invested.

Working out what you will need in retirement

You might find it tricky to estimate what you will need to live on when you retire, because many of your current costs might disappear when you stop working.

Costs such as raising children and commuting to work are likely to be gone, but not everyone will have paid off their mortgage by the time they retire. New costs might also emerge, especially medical costs as you get older.

You should take some time to think carefully about the likely costs you will face when you retire. The easiest way to do this is to itemise what you spend now and then work out which of those costs will remain and which will no longer apply.

You should also consider whether you will have to pay any medical bills or the cost of adapting your home if you become less mobile.

Mortgages and other debts you need to pay off

One subject which comes up frequently for pension planning is paying off debts, especially mortgages.

If you do have a mortgage, work out how long it will take to pay off, because this can really impact your retirement income. Paying it off before you retire enables you to save more of your income, while also removing a major cost from your planning for when your regular income stops.

If you have a lot of debt and are worried about being able to pay it off before retirement, speak with a specialist advisor who may be able to help you to pay off those debts more quickly or reduce the overall cost.

Employee pensions are a key part of retirement

A good pension will ensure you still have money coming in, even when you finish working.

If you have an employee pension, make sure you know exactly what you are contributing and what you will receive from it when you retire.

This is relatively straightforward if you have had just one employer, but increasingly people move between jobs more frequently and so might have multiple small pensions to which they have contributed during their career.

You should keep the documentation for these pensions safe, so that you can ensure you receive your pension payments.

How much should you contribute to a pension?

An employee pension usually involves a minimum contribution, but also allows you to pay in more. If you’re lucky, your employer will match this payment up to a certain percentage.

If you can, you should make these extra payments, because every penny you contribute is money you will receive as income when you retire.

How do employee pensions work?

Most employee pensions are managed by independent companies, which take the contributions made by the employee and employer and invest that money on their behalf.

The profits from the investment are usually then shared between the investment company and the pension pot to benefit the employees when they retire.

In many countries this process is regulated to ensure the pension money is not lost through risky investments. The process usually involves tax advantages for the employer, who may also be required to make minimum contributions.

Should you enrol in a pension?

Most people should be paying into a pension, because it is usually a tax-efficient way to save money for your retirement.

Pension contributions are not normally taxed up to a certain value, so if you pay out of your salary you are avoiding paying tax while still getting the money in the long term.

Details vary between different pensions, so make sure you understand what you will be paying and what the benefits will be when you sign up.

Will you get a state pension?

Most countries offer some sort of state pension for retired people, and this is paid for by the taxes you have paid during your working life.

You might have to prove you have paid sufficient tax to qualify, so you should check this requirement. Some countries allow voluntary payments to “top up” their tax contributions and so qualify for the pension.

If you have investments, you can either use the income they generate as profits and dividends, or you might want to sell them and use the proceeds. The specifics will be unique to your circumstances, so you should consult with a pensions expert.

Is this the same in all countries?

Every country has different rules for how they support retirement, including how or if they tax contributions to employee pensions. Even within Europe, which has a lot of common regulation through the EU, the different countries vary in how the organise and regulate pensions.

Some have maximum or minimum state pensions, some vary payments depending on other sources of income or wealth, and even the retirement age varies significantly.

Make sure you are doing the right thing for your pension where you are.

An employee pension is an important part of your retirement planning, so you should check what you are entitled to and make sure you will have enough to support you when your working life ends.