With more options than ever before, retirement is becoming an ever more complex area. There are so many questions you need to ask yourself before you reach retirement age, including how much income you will need and deciding what you want to do in your later years. So, this week, we have pulled together a checklist below containing five important questions for you to consider:
“Retirement’s the most wonderful thing. I get to enjoy all the things I never stopped to notice on the way up. After an extraordinary life, it’s time to enjoy my retirement.” Patrick Macnee
1. How much money will you have?
Every person – or couple – will have different expectations when it comes to the amount of money they need to live on when they retire; some people’s idea of a comfortable retirement would barely support the lifestyle of others. When you are trying to work out how much money you will have, it is worth checking this against your desired level of comfort – and this means looking at your current lifestyle. Okay, so you may have pensions, savings and investments, you may have also paid off any debts, loans and the mortgage and by the time you come to retire, you should be paying less income tax too. However, you may have plans to travel more frequently, take up new hobbies, or buy a second property/holiday home, which could all incur a considerable amount of additional spending.
Surprisingly, in retirement, many people find themselves spending roughly the same level of disposable income as when they were working and often forget to factor in the rising cost of living in the future on things like utilities and goods. If you are looking for a luxurious retirement, you need to make sure your numbers add up. Speak to our financial planning team, if you’re not sure whether you have enough money for your retirement.
2. Will you be able to retire early?
The answer to this depends on your findings above and what you want to do in your retirement (we explore this point further below). Recent “pension freedoms” allow the over-55’s to draw from their private pension income in a very flexible way (not including final salary or state pensions). You could potentially withdraw a lump sum, typically 25% of your pension is tax-free (the rest would be taxed at your marginal rate of income tax), but the obvious risk here is that you could end up spending all your pension. Interestingly, research shows that the greatest level of spending happens early on in retirement, which is called the ‘active’ phase. Spending then tends to fall during what’s called the ‘passive phase’ because people tend to travel less frequently and do less expensive activities after this point. Then finally, at a much later age, spending then tends to increase considerably as people start needing care – also known as the ‘supported’ phase.
3. What do you want to do when you retire?
This is the greatest question of all and maybe one that you won’t be able to answer fully at this stage. However, it’s important to start thinking about what you would like to do as early on in your life as possible. In simple terms, the earlier you plan, the better your retirement will be. Some possible ideas include travel, living abroad, buying a holiday home or second property, or maybe learning a new skill or taking up a new hobby. All these things will incur costs – some more than others – so we strongly advise taking some time out to think and reflect on how you would like your future to look. Read our previous blog, Setting goals for a successful future.
4. What will be your retirement income sources?
As well as pensions, savings and investments, you might consider other ways to generate income when you retire. This could involve becoming a landlord and renting out a property – perhaps even your own – while you downsize and move elsewhere. You might decide to continue working but on reduced hours, or you may even decide to start a new business; currently, there is a boom when it comes to the over-50’s starting new businesses. Many people are reshaping old or standard views on retirement. So, whether you have a personal project or a business in mind, the most important thing is to consider the amount of responsibility you would like, and any potential stress involved.
You could also consider consolidating your pensions, which may provide you with better returns. However, always seek professional financial advice when reviewing your pensions, savings or investments, so you can make the most of any potential tax relief.
Remember to double-check that you are up to date with your NI contributions as this will affect your State Pension income – this is especially relevant if you have taken a break from work to raise a child.
5. Have you protected your wealth and your estate?
As well as various insurance policies, there are many ways to protect your home and money, as well as your family’s future. Firstly, make your sure you have an up-to-date Will in place that covers every asset including any business interests. Many people choose a Trust-based Will as this can provide certain levels of protection for you and your family including inheritance tax relief – get in touch to speak to our team who can explain more about Trusts.
Ideally, everybody should have a Lasting Power of Attorney to allow key family members or friends the ability to act on your behalf should you lose the capacity to make important decisions. This does not necessarily mean dementia – you could lose capacity by having a stroke, heart attack, or even an accident. Without a Lasting Power of Attorney, if you lost mental capacity, your bank accounts could be frozen leaving a spouse without any access to your money. Please get in touch to speak to our team who can explain the different types of Lasting Powers of Attorney available.
On a lighter note, and most importantly of all, don’t forget to enjoy your retirement! This may sound strange, but without a successful retirement plan, money can become a real worry at a time when you should be relaxing. After all, you’ve worked hard all your life, so allow yourself a worry-free time in your golden years.
If you would like to explore suitable strategies for a successful retirement, please get in touch and speak to one of our financial planners. We will carry out a full financial review and help you set some achievable goals, so you can meet your personal and financial targets.