Hope I'm rich before I get old

Middle age was once described as the time when your narrow waist and broad mind change places. But it is also a time when people have the most disposable income available for financial planning.

When the children have left home, many people are at the peak of their career, their mortgage may be mostly paid off and they have already bought most things in life they are likely to buy. It is a time when it should be possible to relax a little more and enjoy life.

For many, however, the late 40s and 50s are a time when the realisation dawns that their retirement income will fall short of their expectations. Most have simple income needs in retirement - two thirds of final salary and an inflation-linked pension. In practice, job moves, redundancy or early retirement and perhaps falling income towards retirement age may mean a pension somewhat below the level they had hoped for.

Anyone who is self-employed or runs their own business has to fend for themselves in order to get more than the basic State pension. Few realise just how much of their income they have to invest to get the pension they want.

Richard Hunter, of London independent financial advice firm (IFA) Holden Meehan, says: "Everyone thinks they'll be rich at retirement by paying pounds 50 a month into their pension plan." The reality is somewhat different. Richard Hunter advises saving at least 10 per cent of your income if you are under 30, 12 per cent if aged 30-40 and "as much as you can over the age of 40". The Director General of Fair Trading recommended similar figures in his 1997 report on pensions.

Tax and pension expert, Danby Bloch, of Raymond Godfrey & Partners, warns that the OFT's figures are optimistic. In particular, falling annuity rates - the pension you can get from each pounds 100 of savings - mean that a larger fund is now needed to get the same income compared to even a few months ago. Women, too, should save more, as they tend to live longer.

But many people now associate personal pensions with mis-selling scandals and high charges. That ignores the big changes that have taken place, suggests Richard Hunter. "Today's pension plans are so much more flexible," he says. "Twenty years ago, if you took a one-year payment holiday you had to repay every missed premium when you started again, and charges were much higher, especially at the start." Now, greater competition has seen most companies reduce their charges and increase flexibility so you can stop, start or change your contributions - but shopping around is still important.

A growing trend until recently, has been pension drawdowns, where a pension plan is cashed-in to buy an annuity a bit at a time, based on the theory that as you get older so the annuity rate, which determines the income you get, will rise also. The problem is that long term interest rates, which determine annuity rates, have fallen sharply. A woman retiring at age 60 can now expect to get an annual income of up to pounds 761 from each pounds 1,000 of her pension fund, compared to pounds 853 at the end of last year, according to Planned Savings, a specialist financial magazine.

Fortunately, saving to have more to spend in retirement is not just limited to pensions, says Len Warwick of Cheltenham-based independent financial advisers Warwick Butchart Associates. He recommends looking at tax-efficient PEPs and Tessas, as well as the new Individual Savings Accounts (ISAs) when they are introduced next year.

"The key is to look at things holistically," he says, "so start by asking yourself what your lifestyle is going to be." Anyone planning an active lifestyle based around holidays, action sports and sailing or golf may need more income than someone who plans to spend their retirement in the garden, for example. The home, too, can be a source of income. "Many people trade down to something smaller when their children have left home, and that can generate the capital to help fund their retirement," says Len Warwick.

Others may want to dabble on the stockmarket. Even so, talking to an IFA can be a valuable way of getting a second opinion, according to Richard Hunter. Today, nervous markets, falling annuity rates and concerns over inflation and recession mean that it is more important than ever to keep your financial planning under review. Getting the income you want in your retirement is a matter of careful planning rather than wishful thinking.

Holden Meehan on 0171-404 6442; Raymond Godfrey & Partners on 0171-251 4916; Warwick Butchart Associates on 01242 584 144; for a list of independent financial advisers near you call IFA Portfolio on 0117 -971 1177

Andy Couchman is publishing editor of `HealthCare Insurance' Report