Planning for retirement can be a complex task, as every person’s needs and expectations will differ. However, the approach that everyone can take is broadly the same: assess what funds will be available and how you can boost them, clear as much debt as possible before retirement, and look at your post-retirement budget and lifestyle. Once these steps have been taken, you will have a better idea about when you can retire and enlist an expert to help you put your plans into action.
How Big Is the Pension Pot?
The first port of call should be the gov.uk website, where you can get a state pension statement, estimating what you are likely to receive. Next, check your current defined benefit pension from your current employer. You may have contributed to schemes with previous employers – if you’re not sure how to trace them, the government also provides a free pension tracing scheme.
Adding these all together will give you a clearer picture of what levels of income you might receive during your retirement, although these are only estimates and can still be influenced by additional factors.
Some pensions are invested into funds. Any form of investment carries the risk of losing value as well as gaining it. During the decade immediately running up to your retirement, it may be a good idea to move them into lower-risk investments to minimise any chance of a reduction of value. This decision may already be built into some pension funds, but it’s a good idea to ask the advice of a retirement planning specialist to identify what, if any, decision needs to be taken at this stage.
There are other ways you can positively influence your pension pot during the final years before retirement, such as increasing contributions and even delaying the date you start drawing money from it. It stands to reason that a shorter retirement period means that you can afford to receive larger payments on a regular basis.
Examine Your Post-Retirement Budget
With retirement comes a significant lifestyle change that will have an impact on your budget. Gone are the expensive business lunches, the cost of the annual commute and the cost of other work-related outgoings. Retirement brings with it benefits such as free prescriptions and free travel on public transport, which also contribute to the lowering of your outgoings. Expenses for leisure pursuits may increase, as might gas and electricity bills as you increase the use of your central heating.
As your post-retirement income will significantly reduce, it’s a good idea to examine other outgoings such as payments on existing debts. Ideally, it is better to pay these down while you are still earning so that you can enjoy life on your pension payments as fully as possible. With the new tax freedoms that have been introduced in recent years, some retirees are dealing with residual mortgages and similar debts with their pension’s tax-free lump sum. However, this isn’t always the best choice, especially if you have a defined benefit pension, as you may find yourself giving up a larger portion of your regular income in return. It’s wise to take the advice of a personal financial adviser, who will be able to help you identify whether using a lump sum for debt payment the best option for you.
Decide When and How You Want to Take Your Pension
You don’t need to have given up work completely if you want to start drawing your pension. Usually, you need to be at least 55 years old, unless there are serious health issues involved. Depending on the type of pension you have, there are various options and restrictions as to how you can receive your income. In addition to personal financial advisers (who give advice that is paid for), the government provides a free service called Pension Wise, where you can get pension guidance over the phone, online or in a face-to-face meeting.
Whatever route you choose, and whatever type of advice you choose to take, don’t leave your retirement planning until the last minute. Even if retirement is 30 or 40 years away, it’s still important to keep an eye on the level of contributions you and your employer are making, and do your best to boost the value of your pension pot. Your retirement fund is a valuable part of your life savings, and it is there to ensure that you can live as full and enjoyable a lifestyle as possible when you finally give up work.