Planning for Retirement

Retirement Planning: A Step-By-Step Guide to Prepare

Your retirement is the next exciting chapter of your life and should be approached with a healthy, positive mindset, after all, it’s time for you.

Regardless of when you decide to retire, you will already be thinking about spending time in the company of the ones you love, in a home that you adore, enjoying a fulfilled lifestyle.

To help you achieve this, some planning will be needed. And the more time you give yourself to prepare for retirement, the better. Putting the right plans in place in the decades, years or months leading up to retirement is key to ensuring you feel secure to step away from work. Financial independence is what retirement planning is all about.

Financially planning for retirement

Financial planning can help you put a plan in place to secure the retirement that works for you, and the earlier you do it, the more time you have to prepare.

1. Track down any lost pensions

There are easy ways to find pensions you’ve lost track of. Once you’ve found all you can account for, consolidate them into one pot by transferring them into your workplace or private pension.

Just be mindful that if this contribution pushes your total annual pension contributions over £40,000, you’ll likely need to pay tax on it.

2. Work out how much you’ll retire with

Now it’s time to work out how much you’ll have in total when you come to retire, from your personal pension to any investments or general savings.  For UK residents, you can work out how much pension you’ll receive by:

• Checking your State Pension forecast, as well as the amount in your private and workplace pensions
• Adding in your savings and investments
• Subtracting your 25% lump sum (if you want to take it)
• Dividing this total by the number of years you want your pension to last

There are some great online calculators, like Money Helper’s, which will work this out for you.

3. Work out how much you’ll need

Whether you want to be travelling a lot, running a car, continuing with the fine wine subscription or starting a few fitness classes, sit down and your calculate monthly expenses.

It may seem daunting, but it will show you how much you’ll need in your pension pot in order to retire. Be sure to account for inflation - the government’s 2% inflation target is often used for this. 

Your pattern of income may change when you retire. While some expenses will lower, such as mileage from commuting, others will increase as you fill your free time. Consider this when planning how much you’ll need.

Make sure to think about:

• Pension tax
• Nonessentials like holidays, clothes and meals out

6. Assess your investments

Moving towards retirement may mean changing up your portfolio.

Often, investments made in your 20s, 30s and 40s are riskier. Revisit your portfolio to address whether you’d prefer to move your funds to lower-risk securities.

You may even choose to purchase securities that pay dividends so you can continue to receive a regular income after employment.

7. Decide between renting or owning

For many people who’ve worked hard to buy a property and perhaps even paid off the mortgage, renting can feel like a step back.

However, renting in retirement can be a great option for some. It helps to provide financial and logistical flexibility. You’re not tied down and can free up funds for helping out family members, taking a long-desired trip or otherwise. Take some time to think about whether you’d prefer to rent or own in retirement.

8. Consider professional financial advice 

At the end of the day, seeking professional advice can help you achieve the retirement plan you want. You can use money from your pension to help fund a financial adviser up to three times yearly, without a tax charge.

Here are some resources to help you find the right financial advice:

• Money Helper: Find a retirement adviser
• Unbiased: Financial adviser match

Glossary

Many people accumulate pension contributions across decades of work, only sitting down to review them when they’re looking to retire in the next few years. That may mean people aren’t familiar with a lot of the terminology used when it comes to planning for retirement.

Hopefully, our glossary can help you better understand some of the typical retirement phrases so you can plan yours with more confidence.

Annuity

A pension annuity is a product you can buy with your pension when you reach 55. It pays you a regular income monthly, quarterly, bi-annually or annually. You can choose to have an annuity paid over a set period of time, or for the rest of your life.

It is subject to income tax, but providers usually deduct this before you are paid.

Defined benefit

A defined benefit pension is sometimes called a ‘final salary’ or ‘career average’ pension. It is a workplace pension that offers guaranteed retirement income.

Defined benefit pensions are calculated based on the number of years in the scheme, your earnings and the scheme’s accrual rate. For information specific to your pension, speak to your employer.

They are usually now only seen in older workplace plans or public sector schemes.

Defined contribution

Sometimes known as ‘money purchase’ schemes, this type of pension is the accumulation of money contributed by you and your employer, as well as the investment’s growth.

A defined contribution pension can be workplace or personal.

Hopefully you’re now feeling more in control of your retirement plans and know what you need to do to prepare for later life.

Find out more by visiting one of our open days and talking to the team.