Whether retirement feels a long time away, or it’s now looming on the horizon, it’s important to start planning as soon as you can. Here are some of the key things you should think about as you head down your personal runway to retirement.
If you’ve still got 10 to 15 years to go before you retire, spending time now planning for your future can make a big difference in the long run.
Imagine your retirement. Think about what you want to do when you retire and the type of lifestyle you want. For example, do you want to retire early or continue working part-time, travel the world or volunteer? Write down some ideas and try to prioritise them. This will help you to start working out how much income you may need during your retirement for basic needs as well as those ‘nice to haves’.
Work out how much you’ll need to save. Next, it’s important to work out whether the lifestyle you’re hoping for is actually achievable with your projected pensions and savings. If not, you’ll probably need to start saving more, or work for longer. As a rough guideline, it’s sensible to aim for a pension pot that’s approximately ten times your average working life salary by the time you retire.
Don’t delay pension saving. You most likely have a number of other financial commitments to juggle, such as a mortgage, children’s school or university fees, or supporting other family members. In addition, current cost-of-living pressures mean it can be tricky to think about the future and put money aside. However, the cost of delaying pension contributions can dramatically affect your financial position as you grow older.
Once you have less than a decade to go until your ideal retirement date, it’s even more important to check that your plans are on track.
Know where all your pensions are. If you’ve worked for various employers during your career, you may have contributed to different workplace pension pots. If you didn’t keep track of these (don’t worry, you’re not alone!), you can use the government’s free pension tracing service to find them.
Contact the Pension Tracing Service
Phone: 0800 731 0193
Obtain a State Pension forecast. It is easy to obtain an estimate of how much you will receive by getting a State Pension forecast from the government website (www.gov.uk/check-state-pension). Alternatively, you can call the Future Pensions Centre on 0800 731 0175, or download a BR19 application form. Getting a State Pension forecast helps you understand how much you will receive and when.
Think about consolidating your pension pots. If you have more than one pension, consolidating them could offer multiple benefits and help you manage your retirement savings more easily. However this option is not right for everyone. Speak with your Origen financial adviser who can help you decide whether this is best for you.
Do you need to make additional pension contributions? Your financial adviser can also review whether you need to – and can afford to – boost your retirement savings. Some employers match additional contributions in workplace pensions, increasing your contributions at a lower cost to you. If you are planning to make larger contributions, be aware of the annual allowance – the maximum amount you can contribute to a pension and still benefit from tax relief.
Review any other investments. If you are able to make increased contributions you should consider whether it’s best to make these to your ISA or your pension. There’s no right answer as pensions and ISAs both offer advantages. Crucially, they differ in terms of how and when you can access them, how they’re taxed, and how they affect your estate when you die.
With less than five years to go, your retirement plans will probably be much more front of mind. Aside from checking you’re contributing enough to achieve your desired retirement income, it’s worth getting a deeper understanding of your investments.
Review your risk profile. As you get older, you might feel differently about how much risk you’re prepared to take with your savings. Higher risk investments can lead to higher returns, but there is always a risk that a fall in the value of your pot close to retirement may force you to have to save a lot more, work for longer or leave you short.
It’s best to review your attitude to risk regularly, and check your investments match up. Your Origen financial adviser will be able to help with this.
Evaluate the underlying funds. While you may have gone with your pension provider’s default fund selection initially, you may be able to request changes to suit your needs and attitude to risk. Similarly, pension providers tend to move investments into a default ‘lower risk’ fund as you get closer to retirement age. But this might not be the right option for you, especially if those funds don’t align with your risk profile.
Preparing for take-off
So what’s left to do in the last couple of years, as a final check to make sure you’re on track?
Create your retirement budget – or revisit the one you’ve already made. Update your pension savings and other retirement income sources. Record your essential living costs as well as discretionary spending, and don’t forget to think about longer term care costs.
Decide how to take your pension. How you generate an income will depend on the types of retirement savings you have. With a defined contribution pension, you could buy an annuity, use income drawdown, or take the whole lot as a lump sum. If you have a defined benefit pension, it’s best to speak to your Origen financial adviser as the rules are different and can be more complicated. Finally, because pensions are a tax-efficient way to pass on wealth to the next generation, you may want to take an income from any non-pension savings first.
Talk to an Origen adviser
You’re never too young to start retirement planning. Irrespective of where you are on your retirement runway and how many of these milestones you’ve already ticked off, if you don’t know where to begin, ask your Origen adviser for help.