Your retirement is likely to be the opportunity to do all the things you’ve planned, but never had the time or opportunity. Whether you fancy travelling the world or just spending more time relaxing with friends and family, you likely already have some ideas about how you’ll spend this important phase of your life.
So, it’s worrying that MoneyAge report that almost two-thirds (64%) of Brits do not feel confident about their retirement, while 36% don’t feel confident about planning for retirement.
As the old saying goes: “fail to plan, plan to fail”. Only by thinking carefully about your retirement now can you put plans in place to achieve your desired lifestyle and tick all those items off your bucket list.
So, to help you, here are five tips that could help you to gain clarity when it comes to your retirement.
1. Think about what you plan to do in retirement
Whether retirement is around the corner or many years away, your first step should be to think carefully about what you’d like to do when you’re no longer working.
It follows that if you have plans to go on a round-the-world trip that you’ll need to have saved a larger pension fund than if you plan to relax in your garden with your children or grandchildren.
Insurer Aviva asked retirees what they hoped to do in this phase of life and, perhaps unsurprisingly, travel topped the list. Popular travel “bucket list” items included:
- Seeing the Northern lights
- Going on safari
- Taking a cruise
- Visiting Disneyland/Disney World
- Driving Route 66
Good financial planning start with goals. By understanding what you’d like to achieve we can work out how much you’ll need to live your chosen lifestyle and, consequently, the steps you need to take now.
2. Establish your current position
MoneyAge reports the worrying statistic that many people – especially those approaching retirement – don’t know how much their pension is worth. More than half of adults (55%) don’t know how much is in their pension fund, with this figure rising to 57% of 55- to 64-year-olds.
Once you have an idea what you’d like to do in retirement, the next step is to establish how much you have saved already, and what income this accumulated wealth will likely provide you.
Steps to take include:
- Check your pension statements from any “final salary” schemes to establish what pension you can expect to receive, and when.
- Obtain up-to-date statements from any personal or workplace pensions you have contributed to.
- Trace any “lost” pensions. The Association of British Insurers reports that there is an eye-watering £26.6 billion in “lost” pension pots, so it’s worth spending time to track down any funds you may have lost track of. For example, if you worked for an employer for a short time, you may still have built up pension benefits. Thanks to years of compounding returns, these could be worth a significant sum now.
It could also be worthwhile consolidating your pensions, although it’s important to understand the pros and cons before doing this.
Make sure you also include the value of any other assets you have, such as ISAs, cash savings, and shares when it comes to calculating your wealth at retirement.
When you know what you have saved, we can help you to establish whether it is “enough” and, if not, what steps you should take now.
3. Claim all the tax relief you are entitled to
Investing in a pension is a highly tax-efficient way of saving for your retirement, as you receive tax relief on your contributions at your marginal rate of Income Tax.
For most people, basic-rate tax relief is claimed at source, meaning every £100 contribution to your pension only “costs” you £80.
If you are a higher- or additional-rate taxpayer, you’ll usually need to claim your additional relief through self-assessment. However, a report by Money Week has revealed that, between 2016/17 and 2020/21, savers failed to claim a staggering £1.3 billion in tax relief.
Claiming the tax relief you are entitled to can give your pension fund a real boost, helping you to achieve your level of comfort in retirement.
4. Make sure you have maximised your State Pension entitlement
While it may be insufficient to maintain your desired retirement lifestyle, the State Pension provides a solid bedrock of guaranteed, index-linked income for life.
In 2023/24, the new State Pension is £203.85 a week, or around £10,600 a year. It is paid from age 66 (rising to 67 from 2028).
To be eligible for the full State Pension, you normally need to have accumulated 35 “qualifying years” of National Insurance contributions (NICs).
You will normally accumulate a year of “credit” if you:
- Worked and paid NICs
- Received NICs if you were unemployed, ill, or acting as a parent or carer
- Paid voluntary NICs.
You can check your National Insurance record online. If you aren’t eligible for the full State Pension, you may be able to “buy” additional credits by paying voluntary NICs. This could be a cost-effective way of boosting your retirement income.
We can help you to understand if this would be appropriate for you.
5. Work with an expert
If you want to achieve the retirement of your dreams, working with an expert can help you to reach your goals.
For example, a recent study by Standard Life revealed that individuals who work with a financial adviser expect to retire three years earlier than those who do not. They also expect to be able to fund their retirement lifestyle for six more years than those who are not advised.
We can help you to establish how much you need to save to achieve your desired lifestyle, what steps you should be taking now, and how to draw your retirement income in a tax-efficient and sustainable way.
To find out how we can help you, please email info@lloydosullivan.co.uk or call 020 8941 9779.
Please note
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 results.
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.
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