With people living and working for longer, retirement needs careful planning. Here’s three ways to get a head start.
We may not want to admit it, but retirement is no longer a given, with the onus on individuals to fund their post-work lives. However, getting a head start on your financial planning can make all the difference.
“If you’re retired and drawing an income from your pension, the surge in inflation in recent months could be a cause for concern,” explains Amy Pethers, financial planner at wealth manager RBC Brewin Dolphin. “You might well be wondering whether your retirement income plan can withstand rising prices, and what this might mean for your lifestyle and ambitions.”
If rising prices mean you now need to withdraw more income than you expected, it obviously won’t be long before that well runs dry. Thankfully, help is at hand as we’ve rounded up some ways to help you make the most of your finances both before and during retirement.
Open an ISA (individual savings account)
According to Pethers, ISAs are a valuable source of retirement income. Although ISAs don’t benefit from tax relief on contributions, you can withdraw money whenever you like without paying tax. She says: “Saving into ISAs is a good option if you’re concerned you might need access to the money before the age of 55. It could also prove more tax efficient to deplete ISAs before your pension.”
Choose the right pension
Henrietta Grimston, associate director in financial planning at wealth manager Evelyn Partners, says pensions are the most common way to save for retirement. Defined benefit pensions are designed to provide a pension for life and typically increase each year to provide some protection from inflationary pressures.
“The key consideration for those with defined benefit pension plans is the level of sustainable income that can be taken from the pension,” says Grimson. “This will, of course, relate to the overall size of the pension and projected life expectancy.”
Grimson adds that contribution pensions typically offer the ability to withdraw 25% of the value as tax-free cash, subject to a lifetime limit. The balance can usually be withdrawn from the pension as a lump sum or as an income over a period of time, but will be subject to income tax at the recipient’s marginal rate of tax.
Make use of available platforms, tools and apps
Projected life expectancy is an important consideration when it comes to financial planning. Online life expectancy calculators can provide helpful estimates of your potential retirement income while Pension Wise is also a very useful first step, providing impartial guidance to the over fifties.
Legal & General, meanwhile, has partnered with the Open University to offer a free retirement planning course online, with impartial guidance and support.
“It breaks down the steps you should take to understand how much you might need in your pension pot and suggests ways to make an income when you retire,” says Lorna Shah, managing director, retail retirement at Legal & General Retail. “It also covers options if your retirement savings fall short. Our Midlife MOT also offers support for those approaching retirement.”