PREPARING FOR RETIREMENT (CONT.)
Funding your retirement is of greater importance now that life expectancy rates are much higher. Enjoying an active retirement, for a number of years, is now a reality for many people, and something to look forward to.
The most important element when planning is to ensure that your income sources enable you to enjoy your chosen lifestyle during retirement. It’s vital to plan ahead to create a secure income, with some flexibility, especially if you don’t have the benefit of a final salary pension.
GIVE YOURSELF TIME TO PLAN FOR RETIREMENT
While the prospect of retirement can be exciting, establishing a plan to ensure you are financially sound can feel like a worrying task. It’s no surprise that the decisions you make before retiring can shape your income for the rest of your life.
The most important consideration is to think about how you want your retirement to look, and put in place sensible steps to help ensure your dreams can become reality.
Ideally, when it comes to retirement planning, it really is a case of the earlier you start the better. By setting aside retirement savings over time you will be in the best position to build a substantial pension fund over your working life.
If you live in the UK, you will be eligible for a state pension. However, the age at which you can access this pension is rising and it’s no surprise that for many, the state pension will barely be adequate.
HOW MUCH IS ENOUGH?
A common question when planning for retirement is how much you need to save. The answer is dependent on many things – including your age, desired retirement age, earnings, health, lifestyle and more. In the end retirement looks different for everyone – you may want to travel, spend time with family and friends or focus on hobbies or pursuits which your working life may not have given you time for.
Your current income, financial position and arrangement must of course be a consideration, and common sense is needed too.
Ultimately you will need to work with your financial planner to determine your own ‘magic number’ when it comes to providing for your retirement; one which reflects your unique circumstances, plans and lifestyle.
An expert can offer an impartial opinion to help you determine your retirement goals and the steps needed to achieve them. With this in mind the key point is not to ignore this critical area of financial planning.
Much like other stages of your life, planning can be a real key to success.
MAXIMISING YOUR PENSION
Whether you have just started your career or are near to retirement, there are ways in which you can maximise the potential of your pension.
- Increasing your workplace or personal pension contributions can offer a substantial boost in the form of tax relief. This can prove particularly fruitful if you are a higher-rate taxpayer. Not only will the Government add the basic rate of 20% to your monthly contributions, you can also claim further through high-rate relief in your tax returns. It is important to note that there are limits on the amount of contributions you can pay into your pensions annually but this can still be a useful way to enhance your retirement pot.
- Another option is to delay when you start taking retirement income. This may be suitable if you are scaling back your working time, as it gives you more time to contribute to your pension, increasing your savings when you do retire. In addition, annuities and other guaranteed income products tend to increase in rate as you age, so you may receive a higher income if you delay. It is important to speak to your provider about delaying your pension, as some can charge for changing your date of retirement.
- You may also be in a position to defer your state pension. The latest rules mean that for every nine weeks that you defer your state pension, your monthly income will increase by 1%. This works out at nearly 6% per annum, so can be a worthwhile exercise.
DRAWING YOUR PENSION
While many have a retirement date in mind (and a pre-defined age on their pension plan for when pay-outs can begin) it’s important to consider a number of factors when deciding when to start taking your pension.
Firstly, you don’t have to stop working to be eligible to draw your pension. However, in the UK you must be at least 55, unless serious health conditions trigger an early withdrawal.
Secondly, you will need to review your plan with your pension scheme provider and confirm the date you specified for starting to take your pension. While the age listed in your plan is not compulsory, providers may charge you if you decide to start withdrawing from your pension at an earlier or later date than previously agreed.
The most important factor to consider is how you want your retirement to look, both financially and personally. As with all decisions regarding retirement planning, it is important to seek professional advice, to ensure that you make the correct decisions for your circumstances.
QUESTIONS TO CONSIDER
When you start to consider retirement planning it can be useful to think about a number of key areas:
WHEN TO RETIRE
• Do you have a particular age at which you wish to retire?
• Do you plan to take a more gradual step away from your career by perhaps working part-time, freelance or in a consultative capacity?
Factoring in these considerations will enable you to ‘work back’ when saving for retirement.
WHERE TO RETIRE
• Have you plans to retire in the UK or overseas?
• Are you keen to explore the opportunity to be more globally mobile with perhaps one or more properties alongside your ‘main’ residence?
• Does your overseas destination have a double tax treaty with the UK to help protect your retirement income?
• Do you need to consider any other assets such as property or cash reserves?
• Do you plan to retain your home or other property or perhaps let or sell it to generate additional income in your retirement years?
• How much would you like to leave to your family?
• Are you planning to bequeath your estate in cash or via property or personal items?
• Have you made adequate provision for long-term care?
• If you are planning on spending time overseas will you need to make allowances for medical expenses?
• Have you taken all steps to ensure that your retirement income uses all available tax allowances or reliefs?
OTHER FINANCIAL COMMITMENTS
• Have you considered any other commitments you have such as a mortgage, loan or other debt?
• Do you need to factor these into your planning to enjoy greater financial freedom when you come to retire?
It is always advised to ensure you clear debt, particularly ahead of retirement.
SEEKING EXPERT RETIREMENT PLANNING ADVICE
It is not uncommon to put off planning for retirement until a later date. 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.
Retirement planning is a highly individual process, and best undertaken by discussing your own circumstances and goals with an expert.
With teams across the UK and overseas we can help support you at any stage of your planning process. We can offer advice whether you are focused on building lifetime savings and retirement plans over the long-term or are approaching the end of your working life and need to get your affairs in order.
For more information please contact your nearest office to speak to one of our pension experts.