Even if your retirement may be a good ten to twenty years away, it may not be as far as you might think. In fact, retirement is one of the first things you should start planning about soon as you begin working. Thinking about your future plans as early as possible will make things easier for you when the time finally comes. Here are our top tips on retirement planning.
Consider When You Want to Retire
Unlike the old days, retirement is not a fixed period in your life anymore. You won’t be forced to retire upon reaching a certain age, so you can continue working past your retirement years as you wish.
However, if you do decide that you want to retire early, you can opt to receive your pension money from either your private or workplace scheme when you’re at least 55 years old. While taking early retirement can be very tempting especially if you hate your job, doing so means you will receive a smaller amount than what you would otherwise received if you carried on with your job.
For about six months before your planned retirement, talk to your providers or trustees and inquire about how much exactly you will receive from your pension schemes, for both your private and workplace pension schemes. Meanwhile, for your state pension, you should be contacted by the Pension Service four months before you retire to let you know how much you’ll be receiving.
Decide Whether to Consolidate or Not
Consolidating your pension pots may be a good idea if you are somehow unhappy with your current arrangements or if you’re planning to buy an annuity. But while it’s convenient to have your money all in one place, there may be fees associated upon exiting, so be careful.
Think About How Much Money You Will Need upon Retirement
While you can get rid of most of the costs you’ve had while you were still working, expect that you’ll have to spend more on your leisure activities and on household expenses, as you’re most likely going to spend a lot of time at home. It’s wise to have a list of all the activities that you’re planning to do and places you’d like to visit, so you would know how much money you’ll need.
On the other hand, if retiring early is more important for you than completing everything in your bucket list, you can make ends meet by planning activities based on your pension income and not the other way around.
Look for Other Benefits
If you are eligible for a pension credit, this allows you to top up your basic pension up to £165.15 if you are single and up to £247.20 if you have a spouse. Also consider registering for winter fuel allowance, senior rail card, free bus pass, free TV license, etc.
Think About Where You Want to Live
Where do you want to spend your retirement? Do you want to lead a simple life in the province or abroad? If that is the case, you may need to transfer your benefits to a certain bank in that country. It’s also worth checking the tax rulings in the country you want to spend your retirement in.
Annuity or Income Drawdown?
You can receive your pension income in two ways. First, you can use your pension to purchase an annuity, which gives you a guaranteed income every month. On the other hand, with an income drawdown, your money remains invested so it continues to grow, while you take income from it. Both options are complicated and have their pros and cons, so make sure you consult a finance expert before making up your mind.
In the UK, you are entitled to 25% tax-free lump sum. While this money may be useful in making big and important purchases, you should consider how it can affect your pension pot. This means you’ll have little left if you decide to buy an annuity, so make sure that your cause is worthwhile should you decide to withdraw your tax-free lump sum.
Explore Other Investment Opportunities
While your pension money may sound more than enough for now, you should consider the fact that it may not be as valuable as it is now after a few years. If you have some extra cash, consider other investment opportunities that can help boost your income and protect you from inflation. Talk to trusted financial experts to help you place your money in worthy investments, and make sure to diversify to reduce your risk.