Ready to Retire? Here Are 7 Top Tips to Help You Plan Your Next Chapter

It’s a good idea to start making plans for retirement several years ahead. Below, we offer 7 top tips for planning your retirement.

Think About What You’d Like to Achieve
For many people, retirement means travel and spending more time on hobbies. For others, a simpler lifestyle is preferable. Either way, it’s important to have an idea of how much you will spend in retirement, and whether this is likely to go up or down.

When you first retire, you may want to spend more on leisure activities. But you will probably have fewer financial responsibilities, such as a mortgage or dependent children. For many people, the early years of retirement are where they need the most financial flexibility.

It’s common to reduce spending later in life, although it may increase again if care costs are required. Don’t forget to factor in inflation.

Don’t forget to account for ad hoc expenses, such as a once in a lifetime holiday, making home improvements, or making gifts to family.

A clear picture of your retirement spending makes it easier to plan.

Organise Your Finances
Many people don’t start financial planning until later in life. It’s normal to accumulate a collection of workplace pensions, investments, and savings accounts without having a clear strategy.

It’s worth having a financial healthcheck in the years leading up to retirement. You can do this yourself or work with a financial adviser. It involves gathering up to date information on your finances and ensuring everything is on track. Some points to consider include:

• Cash accounts – do you have enough cash to deal with any emergencies and planned spending? If you have more cash than you need in the short term, you may want to consider investing for higher growth potential.
• Investments – are your investments diversified and appropriate for the amount of risk you want to take? Could your investments be more tax-efficient or cost-effective?
• Workplace and private pensions – do your pensions offer a reasonable investment choice and full retirement flexibility? Is it worth consolidating them to make administration easier when you retire?
• State Pension – do you need to fill any gaps to achieve the full State Pension?
• If you own a business or rental properties, will the income continue to supplement your retirement or do you plan to sell?

Once you have a good understanding of your finances, you can make any adjustments needed in plenty of time.

Planning Your Retirement Date
For some people, retirement is a fixed date on which they will leave their workplace and never look back. If you are financially secure and will find it easy to fill your days, this option may work for you.

But for many, it is a more gradual adjustment. Even if you could afford to retire tomorrow, you will need to think carefully about your next steps. Going from full time work to no fixed agenda can be difficult.

Some tips to make the transition easier include:

• Check if your employer will allow you to retire gradually. Dropping a day at a time will ease the transition, as well as giving you a continuing income.
• Consider part-time work in a low-stress job or something related to your interests.
• Turn a hobby into a part-time business.
• Do volunteer work or help out with family.
• Spend time on hobbies and join clubs to give your week structure.

Where to Take Income From
Unless you have a substantial defined benefit pension that will cover your spending in retirement, it’s likely you will need to supplement your income using capital.

In general, it’s a good idea to use cash first, as this doesn’t fluctuate with the market and you don’t need to worry about taking money out during a downturn. Part of your retirement plan may involve ‘de-risking’ some of your investments so that you have enough cash to see you through the first few years.

Pensions should often be drawn last, as not only are they extremely tax-efficient, but they can also be passed on tax-free to your loved ones in some cases.

Annuity or Drawdown?
If you have a personal or workplace pension, you will probably need to take an income from it at some point.

You can withdraw up to 25% of your pot as a tax-free lump sum. You can use this for ad hoc expenses (such as gifts, home improvements, or clearing your mortgage), or to supplement your income.

The remaining 75% can be used to provide a taxable income. There are two main options:

• Annuity – this provides a guaranteed income for life (or a fixed period). You can build in inflation linking, capital guarantees, and a spouse’s pension. Annuities cannot be changed once they are in force.
• Drawdown – this allows you to draw on your pension pot like any other investment. This offers flexibility, but your pot will still be subject to investment risk and you may run out of money.

The most suitable option will depend on how you feel about risk versus guarantees, the size of your pension pot, and any other sources of income or capital.

Should You Downsize?
Many people consider moving to a smaller home when they retire. They may no longer need the space, and feel they might struggle with the upkeep in their later years.

Downsizing your home can also release some cash that you can use to supplement your retirement.

There are a few points to be mindful of:

• After paying moving costs, including stamp duty on a new property, you may not have as much left over as you think. This is particularly the case if you move to a more expensive area.
• Moving to a smaller property may reduce the Inheritance Tax relief available from the Residence Nil Rate Band.
• You may be able to release some money from your property without moving, by opting for equity release or a lifetime mortgage. These options come with some risks so it’s a good idea to seek advice.

Helping Your Loved Ones
Once you have achieved financial security, you may be thinking about passing wealth on to your loved ones. This can be particularly important if you have an Inheritance Tax liability and want to reduce the value of your estate.

Making gifts to individuals or trusts is the simplest option. However, this may leave you short of money later in life. Smaller, regular gifts may offer more flexibility.

Setting up an insurance policy in trust is another option. This ensures your loved ones will receive a lump sum when you die, regardless of the value of your estate.

Please don’t hesitate to contact a member of the team to find out more about retirement planning.