Staying on track for a comfortable retirement
Saving for your retirement is one of the most important financial plans you can make. You can choose to save in a pension scheme and/or a savings plan, but whatever you decide, you’ll want your funds to grow and be worth as much as possible in the long term.
If you’re currently in your 40s, 50s or 60s, you may be looking forward to a time when you have the freedom to do what you want, when you want. Staying on track to achieve a comfortable retirement requires careful planning, which is why we provide professional advice to enable our clients fully to understand the different options available that can help boost their savings during retirement.
When advising our clients, we also take into account investing in non-pension savings that could be used to supplement pension savings and provide the facility to access money in the event of an emergency. We consider the importance of making sure our clients have the right mix of investments, which is crucial to ensure their savings outpace the return of any threat of future rising inflation. In addition, some of our clients as they approach retirement may also want to take up to 25 per cent of their pension fund as a tax-free lump sum, which they could use to supplement their retirement income by reinvesting in a flexible investment.
Complete retirement from work or changing work patterns, such as becoming a part-time or temporary worker, will also mean changes in lifestyles. We can help you implement a bespoke retirement planning strategy to ensure that you can look forward to a comfortable retirement. So what do you need to consider?
40 somethings
If you haven’t started saving for your retirement by the time you reach your 40s, you need to do something about it! You may already be saving or investing via a tax-efficient Individual Savings Account (ISA), which could be used to supplement part of your income during your retirement years.
During this stage of your life your earnings may be rising, so it’s crucial to allocate the right percentage of your income towards your future pension provision. Ideally, by the time you reach your 40s you will already have built up some retirement savings, whether in the form of ISAs or a company or personal scheme.
But if you haven’t started, it’s not too late – it will just require more effort. This is a very crucial time for your retirement planning and it’s imperative that you act now. Your earnings are likely to be approaching their highest level during this period of your working life and it’s important to make the most of any pay rises and bonuses to help increase your retirement savings.
We can help you set a realistic target retirement age and provide an understanding about what your lifestyle may look like during retirement.
50 somethings
This decade is perhaps the most important of all when it comes to retirement planning. As you enter your 50s you should be maximising your contributions, and as you move towards your late 50s you should be considering reducing an element of investment risk from your retirement strategy.
If you are looking to achieve greater control over where your money is invested, and if appropriate to your particular situation, you may wish to consider a Self-Invested Pension Plan (SIPP). A SIPP is a personal pension but with added flexibility. Before transferring to a SIPP, it is important to check whether the benefits, such as your tax-free cash entitlement, are comparable with those offered by your existing pension. We can make sure you are aware of any penalties you may be charged or any bonuses or guarantees you could lose.
If you have had an annual income of £130,000 or more since April 2007 and make regular contributions to a pension, changes announced in the 2009 Budget may affect you. Switching regular contributions to a new pension could mean future regular contributions are subject to a £20,000 limit.
We can help you plan for a specific retirement target age. It might not be definitive, but it will serve as a point of focus. Calculating the sort of income you may require and taking a detailed look at your pension and where it’s invested are also crucial planning requirements. Positioning your pension fund for your choice of retirement income options is also essential.
If you are likely to purchase an annuity when you retire, you may wish to phase out volatility from your pension fund. This will mean there is less risk of a reduction in value prior to taking your benefits and can be achieved by moving money out of higher-risk equities and into safer cash investments.
60 somethings
During this decade, you will be making important decisions about how your pension fund produces cash and income in retirement. These will often be lasting decisions that can have a major impact on your future finances. This is particularly true in the case of annuities, where the options are varied. You may also qualify for a higher annuity rate if you are a smoker or have an illness.
Making choices at retirement is about so much more than simply choosing the most competitive annuity rate. You may wish to utilise alternative methods to achieve greater control over your income flexibility in retirement and phase the payment of tax-free cash over several years to reduce income tax bills.
Did you know?
Forecasting your pension
It’s important to check how much pension you’ll receive on retirement, which means you can take action now if you think you won’t have enough to live on when you retire. You can do this by obtaining a forecast of what your State Pension or other pensions will pay.
Gaps in your National Insurance record
You get a State Pension if you’ve paid enough National Insurance Contributions (NICs) during your working life. If there are gaps in your NICs record, your entitlement to the State Pension may be affected. You might want to consider filling in the gaps by paying extra contributions.
Pension rule changes from 2006
Since April 2006, simpler rules have been applied to both personal and company (occupational) schemes. These allow most people to pay more into their pension schemes and on more flexible terms.
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. The value of tax savings and eligibility to invest in an ISA or SIPP will depend on individual circumstances, and all tax rules may change in the future. The value of your SIPP when you draw benefits cannot be guaranteed as it will depend on investment performance. The value of fund units can go down as well as up and investment growth is not guaranteed. The tax benefits and governing rules of SIPPs may change in the future. The level of pension benefits payable cannot be guaranteed as they will depend on interest rates when you start taking your benefits. The value of your SIPP may be less than you expected if you stop or reduce contributions, or if you take your pension earlier than you had planned.
