It is important to give yourself time to prepare for retirement, as decisions made can be irrevocable and shape how you live the rest of your life. We have outlined 7 steps that are essential to successful retirement planning.
1. Pay off your debts
You should try to start your retirement as free of debt as possible. Your income is likely to be lower when you are retired, meaning debts will have a bigger impact on your income. Paying off debts will reduce your expenditure meaning you have more freedom at retirement. To pay it off faster, make sure you are paying the lowest interest rate available. You could consider using your pension tax-free lump sum to help clear existing debts.
Start by calculating how much you owe on your credit card, personal loans or mortgage. You should focus on paying the debt that charges the highest interest rate first. Reducing debt will minimise the amount of your retirement income spent on interest payments.
Your mortgage is likely to be your biggest monthly expense. Many people pay off their mortgage before retiring or downsize to enable them to do so. Downsizing will also reduce your insurance premiums, property taxes and maintenance costs.
2. Create an income from your pension
Research your options at retirement and decide which option is best for you. A Four Wealth Management adviser can help you to navigate the complexities of options available by creating a tailored retirement plan for you. This could consist of a combination of retirement options such as an annuity for a guaranteed secure income as well as drawdown which will potentially allow your retirement pot to grow.
3. Calculate your monthly income
When you have a retirement plan in place, you will be able to calculate an approximate monthly income from your savings, pensions and any government benefits. It is important to plan for your assets to last your lifetime.
4. Make a retirement budget
Underestimating expenses at retirement is a common mistake. Planning your spending each month will help your retirement savings last. Start by working out how much income you need to cover your bills, such as housing, food and utilities. If this is more than your calculated monthly income, there are options available to you including delaying your retirement to give you time to save more, cutting your spending or creating a retirement planning strategy to help increase your retirement income. You should also review your total expenditure and cut out subscriptions or services that you no longer use.
5. Decide when to start taking your pension
You must usually be aged at least 55 to start drawing an income from your pension. You do not have to stop work to start taking your pension and could choose to phase into retirement by gradually reducing the amount of hours you work.
A Four Wealth Management adviser can help you calculate a target date that you could start withdrawing from your pension to enable you to have a comfortable retirement. They can also advise how much income you can take monthly to help prevent you from running out of money in retirement.
6. Ensure you have protection in place
Your insurance needs are likely to change throughout your life. If you have debts or dependents, life insurance will be vital to your family’s financial security. As you get older, long term care and health insurance are likely to become more important. Long term care insurance will provide you with peace of mind by protecting your retirement pot from the costs of long term care and help enable you to leave an inheritance to your loved ones. It may also be worth considering income protection if you are unable to work due to an accident or illness.
It is important to review your protection policies regularly to ensure that they reflect your current situation.
7. Review your will and lasting power of attorney
Having a valid, up-to-date will can reduce the amount of taxes your family may have to face by making the most of tax reliefs available. It also offers your family peace of mind, knowing your estate will be distributed as you intended. If you die without a will, there are certain rules that dictate how your money, property or possessions will be allocated which is unlikely to reflect your intentions.
Your will should be reviewed and updated regularly to reflect any changes in circumstances.
It is also important to considering having a Lasting Power of Attorney in place, which is a document naming someone you trust to make decisions about your property and financial affairs, your health and welfare or both, if you are unable to do so yourself.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs can change at any time. The value of any tax relief depends on individual circumstances.
Will writing and Powers of Attorney involve the referral to a service that is separate and distinct to those offered by St. James’s Place and are not regulated by the Financial Conduct Authority.
