Your Retirement Checklist
Retirement might feel like it’s a way off for you yet, but it’s never too early to start preparing. After all, for most of your working life you have (hopefully) been contributing to or building up some form of pension, to fund your retirement – and you’ll want to make the most of it when the time comes. But if you’re thinking that maybe you’d like to stop working in the next few years, then there are a few things you need to get in order and choices you’ll need to make now. To help you prepare, we’ve put together a checklist of things to make sure you’re ready for retirement
Work Out Your Likely Retirement Income
First things first, you need to work out how much money you’re likely to have to live on in retirement. This will form the basis of most of your other decisions, so it’s best to do this first, around 2 years before you stop working. To do this, you’ll need to:
Get a state pension statement. If you don’t already have one. A state pension statement is a good place to start. This will give you an estimate of how much state pension you might receive, based on your National Insurance contributions so far. You can request this for free at the GOV UK website.
Add up your savings and investments. While a pension is a great way to save for retirement, it’s not the only string to your bow. You might also have other savings accounts, investments or bonds that you could use to increase your income when you retire – so track these down and add them up.
Track any lost pensions. Changing jobs can mean that you leave a pension pot from one employer behind. But even if you’ve left, you’re still entitled to that pension. By retirement you might have amassed a few of these, and not remember where they all are. Finding them can be tricky to do on your own, but with the help of an adviser like us at Chilvester, or the Pension Tracking Service, you should be able to discover any and all pensions in your name, no matter how old they are.
Don’t Take Risks With Your Pension
Right now, you’re probably at a time in your life when you’re starting to consider retirement a bit more seriously (otherwise you wouldn’t be reading this). This means you’re at the point where you possibly need to start restructuring your pension. If you have a personal, stakeholder or workplace ‘defined contribution’ pension (where you build up a pension pot), then some or all of your money is likely to be invested in funds. This is no bad thing, but as you get closer to retirement, you might want to start moving your money into lower-risk investments. This shouldn’t be an overnight thing – you can start moving money to low-risk options as early as 10 years before you retire if you choose to. Some pension funds will even do this automatically for you.
But be careful – this is also the time where you are most vulnerable to pension scams, and you don’t want to lose your pension that way. If you’re not sure about how to restructure your pension, or think you might be the target of a pension scam, talk to us and get some advice.
Your choices here can shape your income for the rest of your life, so it’s important you have all the information before you go ahead
Boost Your Pension
If your retirement fund is looking a little lower than you would like, then the scope for making major changes to boost your pension pot is limited. But that doesn’t mean you can do nothing at all. If you know ahead of time, you can focus on putting more into your pension, and put back the date you start drawing from it. This increases the amount you’ll have to retire on and decreases the amount you need in it, since you would have a shorter retirement overall.
Budget For Changes In Day-To-Day Spending
At the moment you probably have a pretty good idea of what you spend during the course of a normal month. You’ll have a pattern of day-to-day spending that suits your current situation, and be happy with it. But when you retire, you’ll need to adjust that pattern to suit your new lifestyle. Work-related costs (like travel to work, lunch and work clothes) may go down, but spending in other areas (like heating, healthcare or leisure activities) may go up. Prepare yourself a budget that looks at:
- Where your income comes from now and how you spend it.
- What your likely post-retirement income will be, and where your spending may change.
- Any changes you might need to make to live comfortably in the years ahead.
Clear Your Debts
It’s normally a good idea to go into retirement as debt-free as possible – especially since your income may go down in retirement, making it more difficult to repay any debts. To do this:
- Add up how much you owe (on credit cards, personal loans and your mortgage, if you have them).
- Check the interest rate you’re paying on each debt.
- If you have money spare, pay off the debt that charges the highest interest first, and then work backwards.
A lot of people will also opt to use their pension tax-free cash lump sum to clear bigger debts like a mortgage or loans. But depending on the type of pension you have, this can be an expensive option, so it’s always worth getting a second opinion before you go down this route.
When To Take Your Pension
Now, you need to set a target date when you want to start drawing an income from your pension. It’s important to remember that you don’t have to stop working to take your pension, but you do need to be over 55 (or if you’re in very poor health, you can take it earlier). When deciding when to start drawing your pension:
- Check your nominated retirement date and whether this is still in line with your goal.
- Think about how you want to take money from your pension, if it’s a defined contribution pension scheme. The new pension rules mean you can take money out of it however you like – so you need to choose an option that will suit you. If you’re not sure of your option, contact us for advice.
Get Advice
Above all, we urge you to speak to a financial adviser before you make any of these decisions official. Your choices here can shape your income for the rest of your life, so it’s important you have all the information before you go ahead. At Chilvester Financial, we love helping people plan for their retirement. We help our customers unpick even the most complex pensions arrangements, understand what their position is, and choose the right option for their future. Then, we help them achieve it with ongoing advice, support and financial management. If you would like to know more, just get in touch with the team today.