Almost 700,000 people in the UK are planning to retire this year. This is our suggested checklist of the 10 things anyone going into retirement should do.
- List your assets
Before you make any decisions about your retirement you need to know exactly what you are worth and how much income you are likely to have.
- Get a state pension forecast
We advise people to get a state pension forecast in advance of retirement. Not only would this confirm the amount of pension you will receive, but also identify if you have any shortfall in your total of qualifying years for the state pension.
- Tot-up the costs of what you want to do in retirement
You should first think about how much money you need for day-to-day spending. Then work out if you expect to have any other expenses, such as holidays, and how you want to take money from your pension to pay for these things.
- Work out whether you can afford to retire
Have you put enough money aside to be able to retire or do you need to work a little longer? Most people will live longer than they expect to, so you should keep this in mind when doing your sums. A 65 year old man has a 50% chance of living at 87, whilst a woman of the same age has a 50% chance of living to 90.
- Don’t forget the impact of income tax
Whilst those retiring will be able to withdraw up to 25% of their pension funds as tax free cash, any further withdrawals will be subject to income tax once they have used up their annual personal allowance which is £11,850 (from 6 April 2018). To mitigate the impact of tax on your take-home retirement income how about using a combination of sources for your pension, including withdrawals from ISAs and regular realisation of capital gains, making use of the annual capital gains tax allowance which is £11,700 (tax year 2018/19).
- Consolidate your pension pots
Many people have jobs with a series of employers throughout their working lives and thus build a number of pension pots. Having all of your pension savings in one place makes it easier to keep track of your money and you also tend to be charged less for one large sum than you would for a number of smaller sums. Unnecessarily high charges can reduce the value of your retirement fund by thousands of pounds.
- Think about how you want to access your income
People with pension pots have a number of choices, including taking a chunk of their money in cash, buying an annuity (an annual income for life), or taking income drawdown.
- Consider the effects of inflation
When calculating retirement income, don’t forget to factor in the impact that inflation will have on the real purchasing power of your savings.
- Don’t take too much from your pension pot each year
As a rough rule of thumb, strategy suggests that you can take out about 4% of the initial value of your fund every year and be fairly confident that your pot won’t run out. If you take out more, you could hit problems.
- Protect yourself from scams
A staggering 10.9 million consumers have been victims of cold calls about their pension since April 2015, according to Citizens Advice. It’s really important to check whether any company that you are planning to use is registered with the Financial Conduct Authority. You can visit its scam smart website, which includes a list of companies running scams.
By Ivan Lyons, Director, Investment Solutions, Worthing
Contact Investment Solutions: Grafton House, 26 Grafton Road, Worthing, BN11 1QT. 01903 214640 or send an email to Ivan at: email@example.com or visit www.investment-solutions.co.uk