Introduction
With so many headlines in the media talking about retirement age increasing, potential state pension changes due to the new Government and the over 55’s being encouraged to return to work following Covid and Brexit, you could be forgiven for brushing retirement planning aside as something to consider “when you’re ready.”
Working in retirement
However, when will that be? For some of us, the thought of giving up work entirely could be so far away it isn’t even possible to imagine, partly due to a deficit in retirement savings and partly also to the fact you enjoy working! But for others, the prospect of retiring brings up aspirations of travel, hobbies you’ve never got round to trying and spending more time with loved ones. After all, at any stage of our lives we need to have a sense of purpose, and for many of us, it isn’t just the financial gain of continuing to work past pension age, but the need to be useful; it’s the camaraderie of colleagues and the desire to keep our minds active.
How much do you need to retire on?
But do you really know how much money you’ll need in order to retire? And what does retirement look like to you? The transition of not physically receiving a monthly pay check can take time to sink in. Instead you’ll now be in charge of drawing down the funds you need from your pension pot, whether this be via an annuity or through pension income drawdown where your pension remains invested in the stock market and therefore is exposed to a degree of risk. You can also take some of your pension pot as a cash lump sum, however be aware of tax implications which could see you liable for hefty tax payments, so always seek advice before taking this option.
Talking to an independent financial planner can help you calculate exactly what you will need to be financially comfortable in your later years, and it is never too early to start, thanks to the principle of compound interest – where you received interest payments on top of your interest. Remember it is (hopefully) likely that your costs will decrease as you near retirement – mortgages could be paid off, children have flown the nest, debts are potentially settled and your general monthly outgoings will be less. Once you have a general monthly figure you will need to live on, you can then start looking at ways to bridge any gaps that exist within your existing & forecasted retirement savings (ie auto-enrolment or private pensions).
State Pension
Whilst we currently still have a state pension which is increased in line with inflation and the much talked about triple lock, we have no idea how this benefit will change or flex over time, especially with any changes that new Government legislation could bring. With the full new state pension currently standing at £11,502.40 per year (at time of writing and presuming 35 qualifying years of National Insurance contributions), this is unlikely to provide a comfortable standard of living, or a lifestyle that you’ve been accustomed to whilst working.
Financial Wellbeing
Retirement planning should also factor in how you can use your money perhaps for a greater purpose, whether this is philanthropic or to support causes that are close to your heart. You may have a burning desire to leave some form of legacy behind for future generations, or simply ensure that your retirement funds are invested sustainably.
However you want to spend your retirement, statistics show us we’re living longer partly thanks to healthier lifestyle choices and a general acceptance that age does not necessarily mean we stop working, or stop living! What this does mean, is that your money needs to last that little bit longer than past generations, especially if you’re looking to retire before the “official” state pension age.
If you want any assistance from a truly independent firm of financial advisers, please get in touch with our team who will be happy to arrange
