Written by Nathan Munt – Independent Financial Planner
Reaching 55 is an exciting time for many and a time when you start to contemplate your retirement plans. With that said, it is unlikely that you would have spent much time, if any, considering how you plan to retire and so reaching 55 is a good time to stop and take the time to consider how you will make it through the home stretch!
Here are 8 things to consider that will help you plan for retirement:
1. How do you envision retirement?
Retirement is where life begins again and with this freedom comes possibilities. What age do you want to stop working? Or would you prefer to go part-time? Will you remain in your home? Move abroad? Downsize?
Consider this – if each day you could do whatever you wished; how would you spend your time? Retirement is that chance to begin a hobby you always wanted to try, volunteer with a group you never had time to help or travel to places you have never been.
2. Work out how much you have already
If you have not already requested a State Pension Forecast, then do so now. This will give you an idea at what age you will receive this and how much you might get. If there are any gaps in your contribution records, then consider paying voluntary National Insurance Contributions to boost your State Pension.
Request projections from your existing pension providers up to your chosen retirement age. Again, this will give you an idea what you might expect to receive as an income in retirement.
From here you can work out if your retirement vision is realistic, whether you need to save more to support this desired lifestyle or whether you will need to make some drastic changes to your existing plan.
3. Factor in the family
Do not forget, if you are a couple then that means two lots of State Pensions and potentially greater pension provisions. Talk about your plans with your partner and make decisions together.
Pensions are not lost if you die before reaching retirement. They pass to your beneficiaries at the discretion of the pension provider. An ‘Expression of Wishes’ or ‘Nomination Form’ is a simple way of letting your pension providers know exactly who you want to receive these benefits.
4. Save more if you can
It is never too late to save into a pension. Chances are you still need to put away a bit more to close the gap on your retirement dream and the reality at present. If you have 10 years or more to go, time is still on your side and the sooner you act the better!
When it comes to retirement, other assets should form part of your plan, in addition to your pensions. Education fees, gifts for house deposits and other near-term goals are important. Making use of your ISA Allowance for instance can give you another source of funds in the future, rather than relying on your pension.
Of course, you should only invest or save what you can afford.
5. Tidy up your other finances
Do not lose sight of your near-term goals. If you have an outstanding mortgage or any other liabilities, try and clear these before retirement. While you still have high earnings, put some away for a rainy day and build up an emergency fund, if you do not already have one.
6. Assess the risk
When it comes to pension investments, it is important to consider what risks you are taking as you approach retirement. It could be more important for you to protect what you have got, rather than taking a big risk at this stage and it not pay off.
Everyone is different and this decision should be based on your own individual attitude to risk and your ability to absorb losses as you approach retirement and beyond.
7. Get to know your options
Since April 2015, the introduction of new rules has made pensions more flexible than ever before. Annuities used to be the norm, with retirees using their pension pots to purchase a guaranteed income for life. The income would typically be fixed or increasing annually at a pre-defined rate. This option will still be right for many people, especially those not looking to take any risk in retirement and wanting greater security.
Pension flexibility – referred to as income drawdown – may appeal to others, whereby their pension fund remains invested and they are then able to draw an income to match their spending needs.
A blended approach can also work with an annuity covering the essential expenditure, while income drawdown can be used to supplement any other spending.
8. If in doubt, ASK!
Planning for retirement can be daunting, as it can be unclear if you are on track and with the added flexibility over accessing your pension, things are more confusing than ever. Even with the best laid plans, it can be difficult to know how long your pension and savings will last.
A knowledge of UK taxation is often needed if you are looking for a strategy that will minimise the tax you pay on your income and understanding investment risk takes time and research. The government’s Pension Wise is a free, impartial service that can provide you with more information on retirement, your options and what they mean.
At Lucas Fettes Financial Planning, we can provide clarity over your situation and give you the information you need to understand what is best for you. By getting to know you and what your plans are for retirement, we can review your existing situation and if necessary, get you back onto the right track with the view to enhancing your life in retirement.
This is solely for informational purposes and nothing in it is intended to constitute advice or a recommendation. You should not make any investment decisions based on this content. The value of pensions can fall as well as rise and you may not get back the amount you originally invested.
While considerable care has been taken to ensure this information is accurate and up-to-date, no warranty is given as to its accuracy