A New Year is just around the corner and if you’re planning to retire in 2019, there are some steps you should be taking. Being prepared and understanding how your retirement provisions will support you can help you achieve the retirement you’ve been looking forward to.
Among the steps to take as you approach this milestone are:
1. Planning your ideal retirement
When you think about retirement it can often seem like it’s in the distant future. If you haven’t thought about what you’d like your retirement to look like, now is the time to start planning.
Research from Aviva suggests the most common retirement goals are:
- Travel (47%)
- Take up a new hobby/continue with old ones (29%)
- Give financial help to children and grandchildren (21%)
- Buy a holiday home (15%)
- Move abroad (15%)
- Start a business (10%)
Whether you recognise some of your ambitions in the list above or want to spend your retirement years doing something completely different, having a plan can keep you on track. Retirement can be fulfilling and enable you to tick off some experiences. Starting with considering what you want to get out of retirement can help ensure you get the most out of your life after work.
2. Check your State Pension eligibility
For many retirees, the State Pension will form the base of their retirement income. But do you know how much you will receive?
Assuming you have a National Insurance (NI) record of 35 years, the State Pension pays £164.35 per week; £8,546.20 annually. However, if you’re missing NI contributions, the amount you receive will be lower. If you have gaps in your NI record, you may be able to purchase more qualifying years to increase the amount you receive.
If you’re not sure how much State Pension you’re eligible for, you can check here.
Your State Pension isn’t automatically paid when you reach State Pension age, you must claim it. Should you choose to delay taking your State Pension, you can receive a higher amount once you start withdrawing from it. For every nine weeks you defer your State Pension, the income will increase by 1%.
3. Review your Workplace and Personal Pensions
Over the years, you’ve likely amassed several different pensions. With the average adult swapping jobs 11 times, it can be difficult to keep track of all your pensions. However, now is a critical time to review them.
You should calculate the value of any Defined Benefit and Defined Contribution pension schemes that are held in your name. This gives you the information you need to understand the level of income you can expect to receive and to start making plans for how you will withdraw funds from your pension.
Depending on how you want to access your pension in retirement, it may be worth consolidating them. If this is something you’re considering, please contact us.
4. Assess your other assets
While pensions are likely to be the main vehicle you’ve been using to save for retirement, you may also have other assets you will use. This may include savings held in Individual Savings Accounts (ISA) or investments, for example. For many retirees, their home is one of the largest assets they own. It is possible to unlock some of this wealth to fund retirement, by downsizing or using an equity release product.
As with your pensions, you should take steps to calculate the value of your other assets, as well as how you could use them to create an income during retirement.
5. Understand your retirement income needs
Before you jump into making plans, understanding how much income you need is important. Combined with your projected life expectancy, it can help you understand what’s possible with your savings.
First, you should calculate the minimum income you need, covering essential costs. From here, you can start to add on the extras that will make your retirement more comfortable and enjoyable. It will give you a target baseline when working out how to use your retirement provisions to create an income that will last a lifetime.
It’s an important step to take early on, spending at the beginning of retirement could impact your income for decades to come. For instance, if you take a lump sum out of your pension initially to travel, would the remainder of your pension provide enough for you to live on? Or can you afford to indulge in luxuries more often throughout the entirety of your retirement?
6. Adjust investment risk where necessary
When you’re investing for the long term, you can often afford to take on more risk. This is because you have more time to smooth out dips in the market. In contrast, when in retirement the focus often shifts from growth to stability. As a result, you may want to decrease the volatility you’re exposed to as you near your retirement date.
That being said, there’s a growing argument for leaving your pension exposed to more risk even as you enter retirement. Longer life expectancy means your retirement provisions now need to support you for longer and investment growth can help your money go further.
Whether derisking your pension and other investments is the right step for you will depend on a range of factors, including your attitude to risk and other assets at your disposal. If this is an area where you’d like support, please contact us.
7. Use cashflow modelling to project changes
Your wealth will change throughout your retirement years. As more retirees are favouring a flexible approach to withdrawing a retirement income, it’s becoming even more important to understand how your wealth will change over time.
When you work with us, we’ll use cashflow modelling to demonstrate how your income and assets may change over the years. By taking a range of factors into consideration, from annual spending to investment returns, our goal is to help you achieve the retirement you want. We’ll help you visualise how different financial and retirement decisions will affect you now and in the future.
If you’re hoping to retire in the New Year, please contact us. We’re here to help you understand how your retirement provisions can create the lifestyle you want once you’ve given up work. We know retirement goals are individual, that’s why we work with clients on a bespoke basis, putting your aspirations at the centre.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.