For many hard-working individuals, retirement can feel like a strange and distant fantasy. Even if you’re approaching your later years, it can be difficult to let go of the constant desire to feel useful and productive.
In some ways, the trepidation surrounding retirement can be put down to increasing life expectancies and our ‘always-on’ culture. With UK men and women now expected to live to 79 and 83, respectively, a growing number of people are choosing to work well into their 70s and sometimes even their 80s.
What’s more, state pension ages seem to continue rising. At the moment, the state pension age is 65 for men and moving towards 65 for women. By October 2020, the age will be 66 and this is expected to hit 67 between the years 2026 and 2028.
For many workers in their 40s, 50s, and even their 60s, the fact that retirement seems so distant means they struggle to find the motivation to plan for a healthy financial future. Indeed, the Pensions and Lifetime Savings Association (PLSA) has estimated that around 13.6 million workers risk retiring without having secured an adequate income, with many unaware of how much they needed to save to sustain their lifestyles.
Fortunately, with a little forward-thinking, workers can ensure that they enjoy robust financial health well into their later years.
Enjoying your golden years: Planning for retirement is never too late or too early
Whilst the idea of letting go of your career - or at least lightening your workload - can seem a little daunting, retirement represents a fantastic opportunity to follow the passions you couldn’t find time for whilst you were working. Provided you are in good health, you may decide to embark on the trip of a lifetime, join a golf club, renovate an old house or follow your artistic dreams. The possibilities really are endless!
Of course, enjoying a free and happy lifestyle in retirement does not come for free. It is never too early or too late to start saving up to ensure your golden years are comfortable and free from stress.
The full State Pension currently amounts to £168.60 per week depending on your National Insurance record. Many people, of course, hope to live off more during their retirement and can boost their pension pot throughout their working lives.
To figure out what action to take regarding your future pension, you can start by calculating how much money you are likely to bring in once you are retired. Make sure to include any existing pensions, Individual Savings Accounts (ISAs), or any other investments that could boost your retirement fund and remember that the earlier you plan for retirement, the more comfortable it is likely to be.
What constitutes a ‘happy’ retirement?
Of course, the notion of a ‘happy’ retirement means different things to different people. Some wish to travel the world whilst others simply plan to spend time with their grandchildren and learn how to appreciate the smaller things in life. Depending on your goals, therefore, the amount of money you should aim to secure for retirement could range from modest to very ambitious.
To remain comfortable, you will need to think about securing an income that covers all of your essential outgoings and factors in all the extras you hope to enjoy in the future such as holidays and gifts for family members. As a basic rule of thumb, many workers try to aim for an income that amounts to around two-thirds of their salary.
Naturally, finances are not the only factor you should consider when planning for retirement. If you hope to stay active and mobile during your later years, it is important to maintain a healthy lifestyle that includes plenty of exercise and nutritious foods. It is also worth thinking about what kinds of activities you find fulfilling. If you’re a budding writer, for example, you may want to start planning for a life of peaceful creativity and solace.
What kind of retirement will work for you?
As already mentioned, there is no one-size-fits-all approach to retiring. The first thing to think about is when to retire. You may decide to retire as soon as you reach the pension age, particularly if you face health issues. You may also wish to carry on for as long as possible, particularly if you love your career. Either way, it is a sensible idea to consider how much money you currently have and how much you are likely to need once you embark on your new life of retirement.
Strategies to plan for later life - take progressive steps to improve wealth
Once you have established what you want your retirement to look like, you can start taking the steps necessary to reach your financial goals. You will need to consider factors including:
Pensions
Even if you are not far from retirement, you can boost your pension pot in a number of ways. Firstly, consider maximising employer contributions, particularly if your workplace has policies that promise to increase their contributions if you increase yours too. You can work out whether this will be beneficial by carefully reading through your pension plan.
Generally speaking, it is a good idea to increase your regular payments whenever possible. If you are lucky enough to receive a pay rise, for example, you could arrange to put a certain percentage of your extra earnings into your pension plan. You may be surprised how dramatically incremental increases can impact the amount of money you receive once you have retired.
Finally, paying a lump sum into your pension plan is a good way to boost your retirement income. This is because the Government will top up your plan with tax relief (within limits, of course). If you receive a hefty work bonus, therefore, you may wish to consider paying some of it into your pension.
Alternatives to pensions
Pensions are not the only way of boosting your finances during retirement. Investments and savings are also important tools that could help you enjoy the happy lifestyle you’re hoping for. If you have the means, investing in property or the stock market could help to bring in the extra cash needed for the holiday of a lifetime or to help family members pursue their dreams. It is worth noting, however, that these investments can be risky, so it is worth talking to a financial expert beforehand.
Putting money into an ISA could also help to provide a tax efficient income in retirement.
Passing on your wealth
It is worth noting that pensions are not included as part of a deceased person’s estate, meaning that Inheritance Tax (which can go up to 40%) will not be applicable. If you are likely to face Inheritance Tax, you may wish to consider whether leaving your pensions alone and using other assets in the first instance would be a more tax-efficient strategy.
Conclusion
As we’ve explored, securing a stable income for your retirement is vital if you want to enjoy a retirement of happiness and freedom. As Paul Huggins, an Independent Financial Advisor at Huggins Wealth Management, advises, “Save regularly, review your pensions and investments, and obtain regular forecasts from your financial adviser to help work out your expected retirement income.”
This is something that the team at Huggins Wealth Management can help out with. Paul continues, “A financial adviser can assess your existing policies and help you work out what you need to save to get to where you want to be. The earlier you do this, the easier you will find it to start bridging any gaps.”