What's your number?

There's nothing like approaching retirement to focus a client's mind on when they might finish working and how much they'll need in their financial pot. Debt has usually been repaid and most education costs covered. Professionals are often at the peak of their careers and may be enjoying a golden period of maximum earnings and the lowest relative level of fixed outgoings. Careful planning is more critical than ever.

Traditionally, pensions were the cornerstone of retirement planning, but the days of unlimited tax relief are long gone. Most will be limited by a lifetime pension allowance that's been reduced from £1.8m to £1.5m, and will reduce further to £1.25m in April 2014. Similarly, unlimited pension contributions are a distant memory and maximum annual contributions will decrease from £50k a year to £40k a year next April. Making the most of these allowances is essential.

What if?

And there are many other uncertainties to consider. Nowadays, people are living much longer. This could stretch the unfunded state pension and unlimited health care - which people take for granted - beyond breaking point. Could these be withdrawn or limited for "wealthy" retirees? Funding retirement relies on continuing earnings, which depends on good health, so it's wise to protect against the unpalatable - ill health or death - to underpin what we take for granted.

Many people approaching retirement are increasingly helping children and grandchildren onto the first step of the property ladder, which needs capital. University funding is also a new worry. While inflation expectations are currently low, that could change, which could hurt wealth at a crucial point. Then there's the thorny issue of inheritance tax.

The challenge is that there is no one-size-fits-all solution and everyone must consider their own specific circumstances - planning is essential. Start by determining the desired net core retirement income, incorporating some estimate of inflation effects and not forgetting to factor in some margin to allow for one-offs, such as a major purchase or a son/daughter's wedding. Surprisingly, one-offs happen with regularity and my experience of many clients is that expenditure often picks up on retirement. They have more time on their hands and are able to realise long-suppressed ambitions, such as travel.

Then multiply desired annual net income figure by 30. As a rule of thumb, that's the minimum amount needed to ensure and sustain the real, inflation-adjusted value of a retirement fund.

Not so taxing

With the financial target set, there are some steps to help achieve that; in particular, structuring target income to take full advantage of available tax reliefs. The allowance most people fail to use in full is the annual capital gains tax allowance, which is currently worth £10,900 for each individual. Additionally, are the individual and their spouse using all of the lower income-tax rates or is the combined income falling disproportionately on the higher-rate taxpayer? Building up individual savings accounts (ISAs) is one way to provide a tax-free income. A more advanced form of tax planning uses offshore structures to enable tax-deferred income.

Tax is seldom simple but careful planning at this stage can significantly reduce ongoing tax charges, which will increase the effective value of the retirement assets. A key issue to consider is how much risk to take with investment assets, bearing in mind that just a marginal increase in the expected return can carry a disproportionate increase in investment volatility.

Retirement planning is a complex exercise - even at its most basic - and I haven't even touched on the implications of a non-UK domicile. The 30-times approximation is a good starting point but it is precisely that. Its validity depends on many factors, including tax efficiencies, risk appetite, inflation expectations and spending levels. Such planning shouldn't be taken lightly, or in isolation, and specialist advice will help create a holistic strategy that's tailored to individual circumstances.

Mike Anderson is a managing director for the wealth manager professionals client group at Coutts

Coutts writes a regular blog for Private Client Adviser