The concept of retirement is changing…
With more flexible pensions, and the population of the UK living longer than ever before, planning in advance for your retirement is becoming even more important.
Not only will it ensure you’re on track to a financially secure future, it’ll also give you more choice and a greater level of control over your eventual income.
To make you aware of what it involves, here’s everything you need to know about retirement planning:
What is retirement?
Retirement is when a person stops working for good, usually due to age, financial security, and/or illness.
Your retirement age will generally depend on what type of pension you choose, and your own financial need, but is usually somewhere between 65 and 70.
What does retirement planning involve?
Planning for retirement involves organising a set income for when you’re unable to work.
This could be through claiming a State Pension – although it’s worth remembering that this may not be enough on its own.
That’s why many people choose to make funds available by paying into a Personal Pension or Workplace Pension that will add to your retirement fund over a number of years.
Why should I plan for my retirement?
Planning for your retirement is a great way to prepare yourself for the future, and make sure that you’ll be financially stable and can live the lifestyle you want – even when you’re no longer earning.
The earlier you do it, the more manageable it will be, and the less of an impact it’ll have on your finances, in the build up to retirement.
What are my options?
Here’s a quick rundown of your pension options, and what they mean:
State Pension – this is a regular payment given by the government, which anyone who has paid National Insurance contributions is entitled to. The amount you receive will vary, and will depend whether you’re eligible for the basic or the new State Pension.
Personal Pension – this type of pension allows you to choose a pension provider to invest money in, which is then accumulated into an eventual retirement fund.
Workplace Pension – this is arranged by your employer, and involves a percentage of your pay being invested into the pension scheme every month.You’ll usually get some kind of tax relief from the government, and your employer will add money into the scheme as well.
N.B. Even if you choose to get a Personal and/or Workplace Pension, you’ll still be entitled to receive a State Pension as well.
Retirement planning checklist
When should I start planning for my retirement?
Still not sure where to start? Here’s a more detailed timeline of what you’ll need to prepare for, and when:
Ten years before…
Although retirement might seem like a while away at this stage, it’s still worth considering what you want your life to be like when you get there.
Here are some things to think about when you build your plan:
- The age you’d like to retire
- How much money you’ll need when you retire, and how much you’ll have in your fund
- Any savings, investments, or other assets that you could add to your retirement income
- How you’ll pay for travel, hobbies, or further education once you’ve retired
- An emergency savings fund, to help with any unexpected costs like car or home repairs
- Paying off any debts before you retire
- How you’ll support your dependents once you’ve retired
- Putting money aside to pay for long-term care for you, your partner, or other dependents
Five years before…
Now is the time to make sure your goals are on track, by putting some tangible actions in place:
- Decide the age you’re likely to retire
- Consider phasing your retirement, and continuing to work part-time
- Boost your pension by increasing your contributions and/or adding lump sum payments (take advantage of any unused pension tax allowance)
- Trace any lost pensions through Pension Tracing Service
- Ask for up-to-date statements for all your pensions. Get a forecast of your State Pension at gov.uk
- Look over your investments and savings as you get closer to retirement
- Think about whether you’d like to take an income from your pension or whether you want a lump sum, including any tax free allowance, to do something different when you retire
- Discuss your options with a financial adviser, talk to family and friends, or seek free and impartial guidance from Pension Wise (if you’re over 50)
- Write or review your Will, and plan what will happen to your pension and estate, bearing in mind the tax implications
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