nEWS AND INSIGHTS

Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing.

How to balance your retirement budget

Unless you are expecting to retire with more money than you could ever spend, you need to be mindful of how much of your pension pot you are withdrawing each year. If you are withdrawing too much per year, you could be in danger of outliving your pension pot which would mean you would then only receive the state pension. The maximum state pension is currently £164.35 per week, however you could get less depending on your circumstances.

Here we outline some tips that you can use to balance your retirement budget to reduce the chance of you running out of money in retirement.

Decrease expenses

It is often simpler to reduce expenses at retirement rather than increase your income. One of the best ways to take control of your finances is to know how much you are spending each month. Start by writing a list of your monthly and annual outgoings. Then, review each of your direct debits; determine if they are necessary or if the amount you spend on them could be reduced.

You may also find that you are spending a lot of money to run a car when you factor in maintenance, tax, insurance and fuel costs. In the UK, you can get a bus pass for free travel when you reach the female State Pension Age, regardless if you are a man or woman. In London, you can travel on buses, tubes and other transport for free from the age of 60.

You may also find that you are spending a lot of money to run a car when you factor in maintenance, tax, insurance and fuel costs. In the UK, you can get a bus pass for free travel when you reach the female State Pension Age, regardless if you are a man or woman. In London, you can travel on buses, tubes and other transport for free from the age of 60.

You should aim to cut your expenses to a level that is manageable for your reduced level of income from your pension.

Pay off your debts before retiring

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.

Take into account inflation on your pension pot

Prices rise over time, if you want to maintain your current lifestyle, you will need to adjust your retirement income in order to keep up with inflation.

The State Pension increases by at least the rate of inflation each year. If you are relying on your private pension to fund your retirement, you are likely to need to increase the amount you withdraw over time to keep up with inflation.

If you are taking more income from your pension than your savings earn each year, you will gradually eat into your capital which increases the risk of you outliving your pension.

Arrange a Professional Review of your Pension

Decide how you want to receive an income

You can choose to receive a guaranteed secure income when you retire by converting a proportion of your savings into an annuity.

You may choose to leave the remainder of your pension invested in drawdown, which will give you the option of a flexible income and lump sums when you need them while allowing your money the potential to continue to grow. If your pot does not grow as much as you were expecting, you may need to adjust the income you withdraw accordingly.

Guaranteed income at retirement

Guaranteed income is any regular income that you can rely on for the rest of your life. Your State Pension is a guaranteed income.

You may also have guaranteed income from a former employer such as from a final salary scheme. However, this is becoming increasingly less common.

If you want to increase your guaranteed income, you can use some or all of your pension pot to buy a lifetime annuity. This is a policy guarantees a regular income for the rest of your life, regardless of how long you live. You can arrange for your annuity to rise with inflation. At Four Wealth Management, our Financial Advisers will work with you to determine if an annuity is suitable for your circumstances.

Flexible income at retirement

A common mistake that people make when retiring is withdrawing too much money from their pension.

Drawdown is a common way to take a flexible income from your pension pot; your Financial Adviser will work with you to create an income plan. This will advise you on how much money you can afford to withdraw from your pension each month to maintain your lifestyle as well as helping making sure you do not outlive your pension pot.

Start retirement planning today

At Four Wealth Management, we offer a no-obligation review of your finances. If you feel that you will benefit from our services, your dedicated Financial Adviser will work with you to create a bespoke retirement plan suitable for your circumstances. This will provide you with peace of mind when it comes to retiring as you will know how much you can withdraw from your pension each month and what age you can retire.

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 from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Income drawdown will reduce the size of your pension fund and the investment growth may not be sufficient to maintain the level of income you wish to draw. If you withdraw money at a rate greater than the growth achieved by your investments, your remaining fund will reduce in value. The level of income you take will need to be reviewed if the fund becomes too small. This is more likely the higher the level of income you take.

Enquire Now

If you have any queries or would like to arrange a face to face meeting with an adviser for a no obligation review of your personal finances, simply book a call back using the form below. Alternatively, you can call us on 0117 973 0500.

The Partner together with St. James's Place Wealth Management plc are the data controllers of any personal data you provide to us. For further information on our uses of your personal data, please see the Partner's Privacy Policy or the St. James's Place Privacy Policy.

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