12th August 2024
general
Your retirement is a significant life milestone, and likely one that you have been working towards for many years. So, if your anticipated retirement date is now on the horizon, it’s time to start preparing for your next chapter.
No matter when you plan to retire, make sure you take the opportunity to build your savings into a strong position to support you in adopting your preferred lifestyle.
Read on to learn about five financial tasks that may help you to prepare your finances for this exciting new adventure.
1. Calculate how much annual income you will need to support your preferred lifestyle
Arguably the most important step in preparing for retirement is to understand the annual income you will need to support your preferred lifestyle.
There are a few rules of thumb that indicate how much you may need to save to achieve a “comfortable” retirement. While these can provide a helpful guideline, the exact amount you need will be unique to you. After all, your definition of a comfortable retirement is likely to differ from someone else’s.
Whether you’re dreaming of travelling the world, taking up new hobbies, or simply spending quality time with your loved ones, make sure you know how much your preferred lifestyle could cost. And remember to factor in inflation so that price rises don’t take you by surprise later on.
2. Trace any lost pensions you may have forgotten about
Over the course of your career, you may have accumulated multiple pension pots, particularly if you have worked for different employers since the government introduced auto-enrolment in 2012.
It can be challenging to keep track of multiple pots, and this means you could have pension savings you’ve forgotten about. The Pensions Policy Institute reports that lost pension pots in the UK contain a combined total of £26.6 billion.
On average, a lost pension pot contains £9,470. If even one of these belongs to you, the funds could provide a significant boost to any existing savings you may have.
So, it could be worthwhile taking the time to trace any pots you have lost track of to add to your retirement savings.
Tracing old workplace pensions is relatively straightforward, as the government offers a pension tracing service on its website. This will help you to discover the providers you may hold pensions with based on your employment history. You then need to contact the provider to reclaim access to your savings.
3. Check how much State Pension you may receive
In 2024/25, the full State Pension is £221.20 a week, and the triple lock guarantee means this will rise in line with the cost of living each year. So, it could provide you with a reliable income starting from your State Pension Age (currently 66 but rising to 67 between 2026 and 2028).
You’ll need 10 years’ worth of National Insurance credits on your record to receive any State Pension, and 35 years’ worth to qualify for the full State Pension. Visit the government website to discover your State Pension Age and how much you are likely to receive.
If you don’t have enough credits to be eligible for the full amount, you may be able to buy additional credits. This may not be suitable for everyone though, so consult your financial adviser for guidance before you proceed.
4. Decide on the most suitable way to access your pension income
When you know how much pension income you need to afford your preferred lifestyle, the next decision to make is how you want to access these savings.
If you have a defined benefit pension, you will usually receive a pre-determined level of income each year after you start to access your pension.
For a defined contribution pension, though, you have a few more options for withdrawing from your pension fund.
Purchase an annuity
An annuity is an insurance product that provides a guaranteed annual income, usually for the rest of your life. There are lots of different types to choose from, and after you’ve bought one, you can’t usually change your mind, so it’s important to do your research before you proceed.
Use flexi-access drawdown
Flexi-access drawdown allows you to withdraw lump sums from your pension as and when you need them. It’s more flexible than an annuity but you will need to monitor your withdrawal rate to ensure you don’t run out of money too soon.
The most suitable way to access your pension will depend on your circumstances and your priorities. Your financial adviser can help you to identify the method that can enable you to achieve your goals during your retirement.
5. Book a meeting with your financial adviser
Retirement planning needn’t stop when you retire. In fact, your adviser’s guidance is likely to be invaluable in ensuring your retirement savings can support your lifestyle for as long as you need them to.
Your adviser can help you to:
It all starts with a meeting to discuss your plans, goals, and concerns.
Get in touch
If you’d like to know more about how we can support you as you work towards your retirement, please get in touch.
Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about how we can help you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate estate planning or tax planning.
Workplace pensions are regulated by The Pension Regulator.
