After years of working and saving you might just be starting to see retirement on the distant horizon. Typically, people often believe they have lots of time to sort things out but often find that they have left things too late to make up any shortfall in income should that occur. So now is not the time to drift and you should consider taking steps to plan for your desired retirement lifestyle. Look at your potential sources of income well in advance of your target retirement date, so that you will have sufficient time to make any adjustments and consider other steps you may have to make to ensure a comfortable retirement.
1.Have a vision of what you are trying to achieve and when
Start by thinking about the age you would like to retire and how you would like to arrange it. It may be that you would like to phase in your retirement by initially reducing the number of days you are working. On the other hand, you may prefer to retire completely, at a specific time. Will you want to work part time, or perhaps volunteer, or do you have specific interests, or you may want to consider going travelling? Are you planning to stay in the same house, or have you been thinking about moving to a smaller home?
2.Potential income in retirement
You will need to assess what your income is likely to be at retirement, after taxation is taken into account. You may have some old paid up pensions that will need to be analysed and if you are currently a member of a company scheme, this and any future contributions will need be included. Any state pension, savings and investments will need to be considered and if you are likely to downsize your house, how much additional capital could this give you. You will need to make some assumptions on investment growth and any increases in contributions to pensions.
3.Evaluate your likely expenses in retirement
When looking at your potential expenses you will need to consider your basic running costs such as utilities, council tax, water rates, insurances, home repairs, communications, media, food and transport etc. However, once your ‘daily living cost’ are covered, you may want to have additional capital available to cover leisure and lifestyle activities including travel, hobbies, fitness and entertainment for instance. Although these expenses are not essential, some of these activities are a ‘must have’ for some people to enhance their lifestyle in retirement, especially in the earlier years.
In doing this exercise, you may well find that some expenses are no longer required. Hopefully your mortgage has been paid off and any children may have left home by the time you retire, hopefully reducing your expenses. Also, if you travelled a lot for work, those expenses will have all but gone. On the other hand, you may take up new interests that will increase your expenses. Whatever, your estimated expenses are, they should take inflation into account.
If the calculations show that potentially there could be an income shortfall then you need to take action to improve your situation and reducing debt should be top of the list.
Consider accelerating your mortgage payments so that the loan will be paid off before you retire. Curb new credit card debt and try paying cash for major purchases. By limiting new debt and reducing existing debt, you can minimize the amount of retirement income that will be spent on interest payments.
If you downsize your property you could find that the equity realised from the property is a useful source of additional capital to top up your income. However, if your mortgage is already cleared, you may also consider Equity Release which will free up capital to help boost your income.
5.Try to boost your pensions and savings
Whenever possible, increase your retirement contributions. Aim to put enough into your company pension scheme to qualify for any maximum matching contribution that your employer may offer. If you haven’t been using your full allowance you may be able to carry forward previous years’ allowances.
If you have old paid up pensions, they should be reviewed to see that the capital is spread across a range of well diversified funds, which take into account your attitude to investment risk, whilst ensuring they fulfil your financial aims and objectives. It may be that the range of funds available in some pensions do not offer a wide choice and the charges for running the pension could be excessive. In addition to reviewing your existing pensions you can also make regular contributions into ISA’s to make use of the tax allowances and build additional funds that will be more flexible than purely holding pension funds.
6.It’s never too late to start
When your planned retirement date is a decade away it can seem like a distant event. However, it’s important to plan carefully and set realistic goals so that time is on your side and can help you have the means to enjoy the sort of retirement you have always dreamed of.
Even if you started saving and investing for retirement late, or have yet to begin, it’s important to know that you are not alone, and there are steps you can take to increase your retirement savings.
If you would like to consider your retirement options, please contact your adviser, who will be able to discuss with you what your retirement aims are. They can review your current plans to see if they are on target and appropriate for your needs. They can calculate the potential income you could receive, compared to the income levels you require in retirement and then set out the steps you need to take to achieve your lifestyle goals.
The earlier the better, but It’s never too late to start!