When you retire, you are finally leaving the world of work and heading into the next stage of life. It should be a positive experience, not one that causes you stress or hardship. Read on to find out some steps you can take to remove any financial pressures that may occur when you retire.
Draw up a Retirement Plan
Your retirement plan should outline:
- When you want to retire
- Whether you want to stop working all at once or phase it out by reducing working hours/days over time
- Estimates of taxes you will have to pay
- How you are going to take your pension
- An estimate of the money you will need in retirement
Look at all of the Numbers…
If you’re thinking of retiring over the next few years, you should create a budget plan. This is because you will most likely be living off a smaller income and so may need to adopt a different spending pattern to what you’re used to.
For your budget you should work out any essential costs and then figure out how much money you have left to spend on non-essentials. You can then estimate what level of retirement income you will need to afford this.
If you work out what your likely retirement income will be, you’ll be able to clearly see whether there is a clear difference between the money you need and the money you will actually have.
Once you’ve figured out your retirement and budget plan, you need to ask yourself whether this is feasible. Will you be able to retire when you want to and still afford all of your costs? Or do any changes need to be made to your retirement plan?
Changes may include retiring later and increasing pension contributions now. Maybe you will have to make some cuts to your spending in retirement, or maybe you will need to top-up your retirement income. All of these are possible changes which you might need to make which is why it is so important to plan for your retirement in advance, so that you aren’t faced with a huge shock.
Estimating your Retirement Income
- Get your state pension statement via the government website
- Ask any pension providers you have for retirement quotes
- Add up the total of all your savings and investment
It may be a good idea to use a financial adviser to help with this
Make sure you’re Getting the Maximum Amount you are Entitled to
Your will not be automatically paid your State Pension, you will have to claim it in order to receive it. Make sure you do this, because you are entitled to that money! The quickest way to get your state pension is by applying online via the government website.
The amount you get depends on your National Insurance record, from making contributions or receiving credits.
Make sure you trace any old pensions you’ve lost track of over the years. You can use the Pension Tracing Service website for free to help with this. Every little helps…
Go Debt Free
Try to start your retirement with as little debt as possible. You don’t want to be stuck making repayments when you’re already living off a smaller income.
For some tips on avoiding debt and steps you can take if you’re already in debt, click here.
Things you can do whilst you’re Younger
Even if you aren’t thinking of retiring for a long time, here are some steps you can take now:
- Start contributing to your pension as soon as possible. Don’t wait to turn 22 or to earn £10,000 in order to trigger auto-enrolment. Pensions work on a system of compound interest, so starting early can really help build your savings over the years
- Where possible, continue to make pension contributions when out of work. This of course should only be done where you have the spare money to
- Pay more than the minimum contribution to your pension pot