Retirement, me? Not yet, but...
Ready to retire?
Has the retirement bug got hold of you yet? Just when you thought that the kids might at last leave for University for a few years and the mortgage repayment was under control (we hope!) and a bit of financial leeway might have your name on it, the reality of real funding for retirement starts to loom on the horizon. For others, the huge desire to pack it in and enjoy life while there’s still time is starting to get strong around now.
So, whilst some are trying to max out their pension contributions over the last ten years or so to retirement, others are thinking about taking some of that cash out, maybe to pay off the mortgage, to help the kids with a house purchase or to book a special holiday. Whichever group you fall into, it’s vital to get good advice before you make any big decisions – the right financial planning now could make a significant difference to your retirement income.
You’ve probably got other issues to contend with as well, such as how to look after ageing parents and whether you want to hang on to the family home if the children have finally flown the nest, and you may have your own health issues to consider.
So, what should you be thinking about for your financial planning and why is good advice at this stage crucial?
When – realistically – will you be able to retire and how much will you need to ensure that your retirement is comfortable? Do you want to carry on working and secure that final promotion, or are you keen to leave the rat race? Getting it right now is crucial!
What should you do?
Check your existing pension benefits
Hopefully saving for retirement has been on your financial agenda over the last few years. You’ve probably built up a range of pension benefits through the various jobs you’ve held, and maybe through your own personal pension savings too. Even if they’re small pots, it’s important to make sure the funds are invested in line with your attitude to investment risk and it’s also worth checking the charges that you’re paying on each plan. Don’t forget to check the death benefit nominations on your pension plans as well.
Pay off debts and mortgages
Being ready to enter retirement debt free is usually worthwhile and it’s likely that you’ve still got time to achieve this. If you have spare income, you might want to consider using this to pay down debts whilst you’re still working. If you haven’t saved specifically to pay off your mortgage, is it worth earmarking some of the tax-free cash from a personal pension plan to achieve this, unless you have another solution? Some plan to down-size their home, whilst others may have built up a business which could be sold to provide capital.
Make a will
If you have a family, we hope you have already done this and if not, get it done. If you’ve made wills but haven’t updated these for a while, make sure that they still reflect your wishes. Use a solicitor if you can for updating or writing a new will, to make sure it’s done correctly. If the cost of fees is a real problem, you could use a Will Kit, which you can buy from most good stationery shops. Solicitors firms sometimes run a ‘free wills week’ and it might be worth keeping an eye out for this.
Check your (and your partner’s) State Pension entitlement
The State Pension is a valuable source of index-linked income in retirement. It’s a great idea to check what you might be entitled to when you reach State Pension Age – many people expect to receive the full amount but may find that they haven’t built up enough National Insurance contributions over the years. It is good to be prepared – and if you have a shortfall, you may be able to top this up. You can check your State Pension here.
State Pension age is rising, and reached age 66 for both men and women from 2020, increasing further after this. It’s good to know when you can expect to be entitled to the State Pension and you can check this here.
What about your savings?
You have probably built up some cash savings by this stage, whether this is through regular savings or from an inheritance or gift. It’s important to keep cash savings equivalent to around 3-6 months’ income as a minimum in readily accessible funds so that it’s easy to get to in an emergency.
If you’ve built up more cash savings than this, are these working hard enough for you? Check out the interest rates available on the high street and don’t forget about other cash-type investments such as NS&I Premium Bonds. If you have cash on deposit that you know you won’t need in the short to medium term, you might want to think about investing this to help you meet your longer term goals, such as boosting your income in retirement. Whether it’s cash or stock market investments or both that suit you, don’t forget to use your tax-efficient ISA allowance every year: it’s a great opportunity to shelter at least a bit of your cash from tax.
If you’re a higher rate tax payer, think about holding your emergency fund and other cash savings or taxable investments in your partner’s name, if they pay basic rate or no income tax.