If you’re mid-career, or juggling a busy home life, retirement can seem a long way off. But getting your plans in order can help you to make certain that you have the funds you need to support your chosen lifestyle in later years. With longer life spans, and many people enjoying a more active retirement, ensuring you have access to a good, secure income is key.
Making the most of your retirement
The changes in the pensions landscape now mean more options are available for retirement, and you may even choose now to phase out of your working life over a number of years. Certainly, there is more flexibility now than ever before, so taking the time to think about what your ideal retirement looks like will help you get the right plans in place.
Why plan for your retirement:
Retiring is a significant life change, especially following a successful career, so planning ahead can help you to consider all the aspects. The earlier you begin the more options you’ll have, so that you can make the most of the freedom which retirement can offer. It’s also helpful to consider tax efficiency as part of any retirement planning. You may be keen to do all that you can to reduce the friction caused by tax on your pension income, and a good adviser can help you incorporate a strategy to help manage this.
Fulfil your goals
Retirement looks different for everyone – you may want to travel, spend time with family and friends, or focus on interests or activities which your working life may not have given you time for.
You may also want to consider longer periods of time overseas. As well as the traditional popular retirement destinations including the warmer climes of the Mediterranean, more contemporary options are now a reality. Global travel and technology offer a reliable link home, and citizenship-by-investment or golden visa programmes can be an option too. These may allow you greater travel mobility and settlement freedom. It will be important to factor in the implications of time overseas including the climate, language and cost of living as well as the tax and financial considerations.
The most important question is to ask yourself how you want your retirement to look, and work with a financial adviser to put in place sensible steps to help your dreams become reality.
When you’re making plans for retirement, it’s worth thinking about the impact of inflation. Ultimately inflation will mean that everyday items, travel and other expenses will continue to rise in cost in the future and throughout your retirement years. As a result, inflation will erode the value of your savings, and continue to do so even after you retire.
As you begin retirement and rely more heavily on any pensions and savings, your plans could become more vulnerable. As a consequence of the pandemic, inflation is seeing a significant impact, and rates are increasing globally and may do so for some time to come. Therefore, it’s important to work with an expert to evaluate your investments and retirement plans to see if you’re protected against inflation over the long term.
Maintain a standard of living
To maintain your standard of living, you’ll need to consider your retirement income versus any likely outgoings. Do take into account what you won’t need to pay for in retirement. This might include a mortgage and transport costs associated with work, such as season tickets. However, you may have other expenses such as more holidays or activities.
When you are planning how much to save, general guidance can be useful. When you retire your pension pot should ideally total 25 times your preferred annual income. Annual withdrawals of 4% of your starting capital (which increase with inflation) are then achievable without running out of capital over a typical 25-year retirement. These are of course basic rules which can be tailored according to your individual circumstances and the investment markets. A fairly common approach when building up your pension pot is to set aside half of your age: so if you start saving at age 40 it could be 20% of your income, whereas if you start saving at 50 it is 25%.
Preparing for a longer prosperous life
Many people are now living longer; the number of centenarians in the UK has grown by 85% over the last 15 years, and life expectancy rates are increasing around the world. As a result, it’s vital to properly finance those retirement years. This is even more important if you are still planning to retire at or around the traditionally ‘expected’ retirement age as the impact on your pensions and savings could be significant. And if you are keen on an early retirement, then your funds will need to cover an even longer period.
It’s worth noting that collective attitudes towards retirement may shift as State Pension ages extend. We may get more used to working later in life than older generations. But even with this shift it’s no surprise that for many the State Pension is likely to be an inadequate pot to fund an active retirement.
Another consideration is the likely path your retirement will follow. It’s typical to want to do a great deal in the early years of your retirement, including travel or sports, with perhaps less as the years progress.
And a final thought, one of the inevitable consequences of living longer is the increased possibility of the need for long-term care, which can bring with it the requirement for substantial additional funds.
Prepare for emergencies
Emergencies can happen throughout your life, but careful planning can always help minimise their impact. Just as in your working life, it will be useful to ensure that in retirement you have cash deposits which you can easily draw on if the need arises. Keeping your insurances up to date in the light of your changing circumstances as you get older can help too. You may also want to check that your important papers, such as your Will and Lasting Power of Attorney are up to date, reviewed every few years and stored appropriately (and where your family can access them).
Retirement planning from The Fry Group
Planning your retirement well in advance will allow you to properly consider your future plans, and ensure you have the financial freedom to enjoy them. We can help you review your existing pension arrangements or set up a robust retirement plan. For help and advice please contact your nearest office.
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We are here to help with your estate planning requirements. For more information, whatever your circumstances, please contact us today.