If you’re retiring in 2021, congratulations!
Retirement is a huge milestone and one that should be celebrated. You may have been looking forward to retirement and this chapter of your life for years. However, with big changes also comes the need to plan. If you’re to get the most out of retiring in 2021, taking some time to organise your aspirations and financial affairs can mean you’re able to focus on making the most of your time.
Here are seven steps to take before your retirement date.
1. Decide how you want to retire
The first thing to do is think about how you want to transition into retirement.
Not so long ago, most workers gave up work completely on a set date. However, you have far more flexibility today. In fact, this an option just three in ten would choose, according to research by Aegon. A transitional approach to retirement has become far more popular. This may include cutting back your hours, working from home more or moving to a less demanding job.
If you don’t feel ready to give up work completely, a transitional approach can ease you into retirement. It can boost your income in the early years of retirement and mean you withdraw less from your pension, meaning more for your latter years.
Think about what would suit you and your plans.
2. Think about the retirement lifestyle you want to achieve
A plan can help you get the most out of retirement, and that doesn’t just mean your finances but the lifestyle you want.
When you think about your retirement, what are you doing? Perhaps you’re spending more time with grandchildren, indulging a new hobby or travelling more. Considering the day-to-day is a step that can help retirement live up to your expectations. When initially thinking about the next chapter of your life, it’s often the big things that we focus on, but the little things that will fill your days are just as important.
As well as helping you achieve the lifestyle you want, this step can help you calculate what income you need to meet goals.
3. Plan big-ticket experiences and expenses
Retirees often want to celebrate the milestone with some big-ticket expenses and experience. It’s worth thinking about anything you’d like to do.
A once in a lifetime holiday or cruise is often associated with retiring. But you may have other plans, such as renovating your home, splashing out on material goods, or even launching a business. Setting these out before you retire can mean these larger expenses are part of your financial plan.
Don’t just think about the next few years, look further ahead as well. Maybe you plan to celebrate a milestone wedding anniversary in style later in retirement, for example. You don’t have to set plans in stone but having a rough idea of when big expenses will come up can support your long-term financial plan.
4. Check your State Pension
With your lifestyle goals set out, it’s time to start thinking about how you’ll afford them.
While the State Pension is likely to make up only a small portion of your retirement income, it’s an important part. The State Pension you receive is guaranteed for the rest of your life, providing security. It also increases every year, currently by at least 2.5%, although this can change with successive government policy. This can protect your spending power.
There are two things to check:
- How much you’ll receive. The full State Pension for 2020/21 is £175.20 per week (£9,110.49 per year). However, to receive the full amount you must have 35 years’ worth of National Insurance (NI) contributions. If you have fewer years of NI contributions, you’ll usually receive the equivalent portion of the State Pension. If you have a gap in your NI contributions, you may be able to buy extra years.
- When you’ll receive the State Pension. The current State Pension age is 66. However, this is gradually increasing and it’s important you know when you’ll be eligible.
You may be planning to retire before you’ll receive the State Pension, but it’s still essential that you understand when and how much you’ll receive. It may mean you can reduce withdrawals from personal pensions and assets later in retirement, for example.
You can check when you’ll receive your State Pension and get a forecast here.
5. Review your pensions
For most of us, Workplace and Personal Pensions are how we’ll create the rest of our income in retirement.
You’ll need to gather information for each pension. Over your working life, you’ve probably ended up with several different pensions. If you’ve lost the contact details for a pension, you can use the government’s tracing system to track them down here.
With the information to hand, you should review:
- The type of pensions you have (Defined Benefit or Defined Contribution)
- The value of the pensions
- Additional benefits they may offer, such as a pension for your spouse
Not only is this step important for assessing the combined wealth of your pensions, but it also plays a role in deciding how you’ll take an income and what pensions to access first. Understanding your pensions and what your options are, with your lifestyle goals in mind, is essential.
6. Assess your other assets
While pensions are often the focus of retirement planning, other assets can be just as useful for creating an income or supplementing an income.
As a result, you should also assess the value of these and what your plans are. Other assets that could be used to fund retirement may include savings, investments, or property, for instance. Even if you don’t plan to use these to create an income, understanding their value can provide you with peace of mind.
7. Book a meeting with a financial planner
Finally, you need to create a financial plan that pulls all the other steps together. You may know how much you have in your pensions, but how does this create an annual income? Will it be enough to last a lifetime with your lifestyle goals in mind? And how should go about accessing your pension?
Working with a financial planner can help you answer questions like these. If you’re retiring in 2021, we’re here to help you create a retirement plan that you can have complete confidence in. We’ll take the time to understand what you want to achieve as you give up working and how your assets can provide an opportunity for you to meet these goals. Retirement is an exciting step, but we know it can be a daunting and stressful one too. Our goal is to help our clients to step into retirement with confidence, allowing them to focus on what’s important.
Whether you’re already a client or are looking for a financial adviser, please contact us to discuss your retirement.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.