Congratulations on thinking about your next phase in life and considering your retirement planning.
You’ve undoubtedly worked hard for a long time and have a well-established career, so the thought of giving that up could come with a whole heap of emotions. Maybe you’re excited and can’t wait to hang up your boots. But it could also be a decision laced with concerns or anxiety and many what-ifs.
You may not be sure when the right time is to take this big step. Can you afford it? And when can you afford it? Now? 5 years? 10 years? Although we often think about retirement starting with the state pension age (67) or when pensions become available (55), there’s no set age to retire, so it’s completely up to you. It can happen as soon as you are financially independent. In other words, when you can afford to not to work any more. Although many people will continue to work beyond this point to make their finances extra-resilient, or simply because of the stimulation and sense of accomplishment that working can bring.
Ensuring you’re setting aside enough money for the future is important, so the earlier you start your retirement planning, the better.
Working with a financial planner on your retirement plan has several benefits:
- First, it helps you to understand what retirement looks like. It paints a picture of what you would like to do more of (or maybe more to the point, less of!) and what new adventures you have in mind.
- Once the vision for the future is clear, we can evaluate your pensions, savings and investments. Analysing all sources of future income and considering the amount you have saved and what that means for you. Providing you with the clarity you need to take this next step confidently.
- Retirement planning also consists of structuring your wealth in the most tax-efficient way possible, utilising your available allowances to maximise your financial situation.
- Finally, it also maps out how much you need to save and invest to reach your retirement goals if they’re not yet possible.
Retirement income
The State Pension provides a guaranteed source of income to many who have worked in the UK and paid National Insurance contributions for at least 10 years. It’s inflation-proofed and secure, which is great. However, for many, the level of it is not enough to live a comfortable retirement.
Therefore, often people have to rely on other income sources.
You may have workplace pensions to fall back on or have contributed to your own pension arrangements, such as a SIPP or Personal Pension. You may also have savings and investments held outside of a pension that you can utilise in retirement.
As part of the retirement planning process, we analyse all of your potential sources of income in retirement to see if this is enough to support your desired lifestyle in the future. Then, we’ll suggest ways to structure your wealth to maximise the income potential and suggest a savings strategy to bridge any gaps.
Pensions and the tax benefits
Pensions are tax efficient and a great way to help with your retirement planning. For every contribution you make to a pension, the government tops it up with tax relief at your highest rate of tax. So if you’re a basic rate taxpayer, you’d get an extra 20% added, making that £100 pension contribution worth £125. For higher-rate taxpayers, if you pay £100, it would be £166 after tax relief. For additional-rate tax payers that relief totals 45%. Giving you a valuable bonus on everything you save towards retirement!
Only the basic rate is added to your pension automatically; higher rate and additional rate tax relief need to be reimbursed personally via a tax return or telling HMRC.
As this is an excellent incentive, the government limits the amount you can invest into a pension, and you can only contribute a maximum of 100% of your UK relevant earnings, or £3,600 if you’re not receiving an income. There are also limits on the annual amount you can pay each year – currently £60,000.
For business owners, contributions can be paid through the business, which attracts valuable corporation tax relief – reducing your annual tax bill. The £60,000 annual allowance applies and the contribution must be a viable expense that reflects your worth to the business.
Once the money is in your pension, it is free from tax as it grows which makes it incredibly efficient and attractive.
Let’s talk about your retirement planning
It’s never too early to start your retirement planning journey, and our expert financial planners are here to help you along the way. With our fantastic cash-flow planning tools, we can model your future retirement and recommend any changes to optimise it even more.
Book a meeting online, or contact us to discuss your retirement plans.
