It’s natural to have mixed feelings about retirement. Many of us create a vague image in our mind’s eye of what life after the 9-5 will look like but, when the time begins to approach at last, start to feel lost at sea about how we’ll handle it, what we will do to fill the gap left by a regular paycheque, and who we will be in this new phase of life.
In short, retirement is daunting – or, more accurately, it can be daunting. Living off a pension and, hopefully, the profits we generate d for our future selves through old investments, can also be daunting – but it doesn’t need to be.
That old adage about preparation being key holds true for retirement as much as it does any other phase of life. Turning to expert advice on the subject – not just for practical pointers, but for reassurance, too – is one of the best things you can do for yourself (and your future self).
At Fingerprint Financial Planning, this is what we do.
How do You Prepare for Retirement?
There is no one way to prepare for retirement. Ideally, that period of preparation will begin long before you’re actually ready to retire, and it will be characterised by good financial health and a number of strong, risk-appropriate long-term investments. You’ll also want to get to grips with the basics of your pension – although really understanding what it means for you and your lifestyle will require a more tailored approach down the line.
But, while the benchmarks of good financial health are the same, there are countless variables in our lives that mean preparing for retirement will look a little different for everyone. To prepare, you’ll need to consider your entire financial background – your ongoing obligations to children, say, or other dependents, the scope of your savings and pension, your financial and life goals post-retirement, etc.
For this, getting everything out on the table and talking things through clearly and comprehensively with one of our independent financial advisors is the best thing you can do to dispel the apprehension, and really look forward to the golden years.
As the time approaches, you’ll want to prepare with good tax and pension planning, as well as planning for cashflow once that regular paycheque stops. Estate planning is another important factor to consider – for instance, writing a will and planning for inheritance tax – since it’s always better to start sooner rather than later.
This will also be a good time to revisit your mortgage and start working on plans for equity release as a way of shoring up your savings.
Retirement planning is a wide-ranging subject, and we can work with you to tick off the boxes, review every aspect of your finances, and help you to optimise them for a new start.
Defined contribution and defined benefit pensions are very common, but there are some significant differences between the two. The former will pay out money based on how much you and your employer paid in, and how well the investments performed throughout the pension pot’s lifetime. The latter is, as the name suggests, defined by the pension scheme’s policies, meaning the amount you get will be based off the provider, rather than the performance of the investments themselves.
In either case, a certain percentage of the pot – usually 25% – will be tax free.
As you prepare for retirement, you’ll want to decide whether you should receive the pension as a lump sum, a few smaller payments, or as a regular payment (a little more like a routine salary).
All UK employers are legally obligated to enrol eligible employees for workplace pensions. Your employer will make regular payments into this pension pot, but it’s also very advantageous for you to make contributions wherever possible. Doing so over the course of many, many years will help you to aim for a higher standard of living when you do eventually retire.
As such, it’s a very good idea to take the time to sit down and get to grips with your workplace pension, and how you plan to contribute to it. This is something we can help with, whether you are far from retirement age or on the approach.
Final Salary Schemes
Final salary schemes are a type of occupational pension, also known as ‘defined benefit’. Under these schemes, your pension is determined based on your pay level at the point of retirement (and how long you have been enrolled on the scheme), rather than the performance of any stocks or investments.
They are growing more obscure as the years go by, but plenty of people enrolled on final salary schemes are now beginning to think seriously about retirement. Our independent financial advisors can walk you through your options, and help you to decide upon the best way to cash in your pension.
What is a good monthly retirement income?
The exact number will depend entirely on you, your lifestyle and financial goals, and how much money you have saved up. Generally speaking, it’s a good idea to aim for no less than 70% of your current (pre-retirement) income – ideally around the 80% mark.
You can work towards this through your pension, unlocking value through equity release, and any other investments (bonds, ISAs, etc.) you have been already.
What is the biggest expense for most retirees?
In many cases, paying for long-term care as a result of illness or injury proves to be the most significant expense people are saddled with during retirement. Many people fail to qualify for state help paying for a long-term care facility, for instance, and unless you have taken steps to secure your estate, you may be compelled to pay for this care with the value of your home or other significant assets.
What is the best age to retire?
Again, there’s no exact number. Ultimately, the best age is the one at which you are financially stable enough to support yourself without a salary, and mentally ready to leave the world of work in favour of a new pace of life.
What is the FIRE method for retirement?
FIRE stands for ‘financial independence, retire early’, and it refers to a relatively extreme method wherein people live very frugally in their younger years and invest significant portions of their income into investments with a view to retiring as early as possible.
Early retirement is a common goal and, for some, it is very feasible. However, the FIRE method is not for everyone, since it requires a very frugal lifestyle during your working years. It becomes less realistic as you take on more obligations and responsibilities, such as house ownership and parenthood, so don’t assume it’s a ‘cookie cutter’ fast-track that works the same for all of us.
There are plenty of books and online guides on the subject, but they can only offer impersonal advice on a complex subject. For unbiased, personalised advice, our team at Fingerprint Financial Planning can work with you to plan for the retirement you want. Contact us today to find out how we can help you.