Some of the key areas to consider when planning for your retirement:
1. It is retirement planning, and not pension planning
Under regimes of old, people were either lucky enough to be in their employer’s Defined Benefit/Final Salary pension scheme, giving them a guaranteed income for life, or they would use an invested Defined Contribution pot to purchase an annuity from an insurance company.
Pensions are of course an important part, but following the introduction of Drawdown, and then the Flexi-Access rules of 2015 – step 1 is to appreciate that planning for retirement goes far beyond what you have saved in your pension, or will get from the Defined Benefit scheme.
The type of pension, your State Pension, savings, investments, other assets and wider tax planning will all play a major part in funding the retirement that you want.
2. When and how do you want to retire?
A question with an answer that varies from person to person, and the earlier you retire the longer the retirement.
With the age at which you can access Personal Pensions creeping up from 55 to 57 in 2028, and the State Pension age gradually increasing – sitting down and considering time horizons is essential.
Along with thinking about when, how is also a key part. It is now quite rare to retire fully at a given age, many will reduce hours/days worked per week.
It will help develop the picture of retirement, and forms the foundations for the next steps.
3. How much will you need?
A tricky question, and the default answer for many, is to “replace my lost income”.
Sitting down and breaking down your monthly out-goings is where to start. With it being a major step, and a huge change in personal circumstances, many people over-state how much they think they need.
Circumstances differ, but for many with outgoings reducing and some of the larger expenses such as mortgages or raising a young family now passed, it is about focusing purely on your needs.
The picture for retirement is now taking shape at this stage, and preparing cash-flow models will now start to paint a picture of your retirement.
4.Understanding attitude to risk, and capacity for loss
With an idea of how your assets are made up, when and how you want to retire, and how much you need – both your attitude to investment risk, and capacity for loss need to be considered.
Are you comfortable with market volatility, and how important is the security of a guaranteed income?
If an income is to be taken through Drawdown, you need to consider that the value of the pot can fluctuate with the markets. Whilst the level of volatility can be managed through different investment strategies, it is essential to understand the difference between the options available.
You do not have to commit to a single option, and you can balance the makeup of the strategy to fit your personal circumstances.
5. Review on a regular basis
With personal circumstances, legislation, and investment vehicles evolving all the time, reviewing your retirement plans on a regular basis is key.
All of the 5 stages are inter-linked, and a change to one will often affect all of the others.
Sitting down for at least an annual re-assessment of all the above stages is essential to a long and prosperous retirement, and the earlier you start, the more options are available.
Where can I get advice about my pension?
You can get advice about your pension arrangements by speaking to a financial adviser who is authorised and regulated by the Financial Conduct Authority (FCA). If you do not already have a financial adviser, you can click here for guidance from the FCA on finding a suitable adviser.
