Start preparing to retire as soon as you start working!
Retirement is when – for the first time in your life – time no longer equals money. Or at least it does, but only in terms of whether or not you’ll have enough of it to fund the years you have left. Ensuring that you are comfortable and secure during those years requires a measure of care and forethought. And there is no time like the present to start giving some consideration to such matters. This week, Wealth Manager Tom Fleming talks about the options you have for retiring from work… but not from life.
It is never too early to start preparing for retirement
Today’s world is characterised by energy price increases, inflation, war and the rising cost-of-living. In short… volatility. You spend decades putting money into pension pots and you end up becoming accustomed to a certain standard of living. By the time retirement comes into focus, the burning question in your mind is “how much can I spend annually without outliving my money?”.
Regardless of who wins the next election, the tax regime is not going to get any easier. We are up against a backdrop of lower relative spending and (significantly) higher relative tax. Put simply, we are all going to feel the squeeze in one way or another. So you should do everything you can now to get into the best possible position for retirement.
Get the basics covered
Now might be a good time to check in with us and review your current circumstances. Retirement may be the furthest thing from your mind if you are at the start of your career. And then when you are in your 40s and even 50s, there is always something else for which you could be saving other than retirement. But it is never too early (or indeed too late) to make minor alterations based on an ever-changing world and make sure that you are on track.
An obvious place to start is your state pension. Check your state pension forecast and consider “backfilling” any missing years. After all, your state pension is the bedrock of your retirement. Make sure that you are fully leveraging all the valuable allowances that you have while you are still earning – plough as much money as you can into your ISA and any other tax-advantaged wrappers, for example. It’s even worthwhile looking at your cash savings and checking that you are getting the best rate.
How much do you think you will need?
The answer to this question is conditioned by numerous factors. Like increasing numbers of people nowadays, you might not actually want to retire completely. Instead, you might decide that you want to wind down slowly, or swap a high-paid job for one that provides you with a little more in the way of fulfilment. You might want to downsize or start thinking about gifting or annuitizing some of your wealth. That behavioural shift – transitioning from a period during which you are earning money to one during which you are just spending money – is a tricky one to navigate. And it is definitely something with which we can help.
Take stock of your wealth
You will have probably accumulated a number of different pensions from various employers over the years. Working out the total value of your pot might involve tracing and contacting previous employers to identify various pension providers. Needless to say, retirement spending is not exclusively about what’s in your pension pot. You may have any number of other sources of income – such as investment portfolios or properties that you are letting out.
Adjust your investment strategy
The younger you are, the more likely it is that your pension savings will be invested based on a high-risk strategy. This is simply so as to maximise potential returns on your investments. As you near retirement, however, it will make more sense to opt for a lower-risk, more defensive strategy. The closer you get to needing to access the money, the more the emphasis should be on preserving the wealth that you have accumulated, rather than growing it. Lower-risk strategies tend to mean a lower probability of loss. The flipside, obviously, is slower – but more predictable – growth. But if you want to do everything you can to ensure that your savings last a lifetime, de-risking your portfolio might be preferable. One of the things we do as part of our cash modelling exercise with you – and indeed continue to do over the course of our relationship with you – is determine your attitude to risk. This helps us establish the right strategy based on your risk appetite and goals.
You don’t have to retire completely
For many people, after a lifetime of stress and toil, retirement cannot come soon enough. But that does not apply to everyone. Many people actually end up finding retirement less fulfilling than they thought they would. And early retirement might not be an option if their savings are less likely to cover what they need to enjoy the years ahead and maintain the lifestyle that they want. More people nowadays opt instead for a phased retirement, slowly reducing the hours they work over a few years. More people want to step back rather than step away. This gives them the opportunity to continue contributing to a pension. Some people may even decide to start a small business with the lump sum they get at the start of retirement. Different types of retirement suit different lifestyles and different financial goals. We can help you establish what yours might be.
Uncertainty about retirement
Making such decisions can be stressful, and you should do all you can to check that your savings are enough to allow you to enjoy your golden years. Get in touch with us and make sure that your plans are on track for the retirement you deserve.
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