The big questions to ask before you retire
29th January 2020
Are you on track to enjoy the retirement you want? If you’re among the many older UK workers who will say farewell to full-time work in the next five years, now’s a good time to make sure you’re truly prepared. Whether you’re viewing the next phase of life as retirement, semi-retirement or an unknown adventure, it’s essential that you obtain professional financial advice. From age 55, you have the flexibility to choose how you take some or all of your money from your pension.
Looking towards your retirement and planning ahead will help ensure you’re on track for the financial future you want. And while some people might have been saving and planning for decades for retirement, others might be crossing their fingers or have yet to give real thought to their transition away from working.
Currently, once you reach 55, you can choose what you want to do with your pension pot, and you don’t need to stop work to access it. But just how much is enough? And how much should you try to save to have a comfortable retirement?
How much income will I need for my retirement?
Many people consider £39,773 as their ideal income in retirement, according to research. This means that, after the State Pension of £8,767.20 per year is factored in, £31,005.80 per year is needed to reach this target.
With annuity rates at near historic lows, that means a pension pot of £668,000 could be needed to purchase a level of annuity that would produce this income.
It is important that you re-evaluate your preparedness on an ongoing basis. Changes in economic climate, inflation, achievable returns and in your personal situation will impact your plan.
What size of contributions should I make each month?
It’s hard to start a journey without knowing your destination. The first step is to set a retirement date and a desired level of income, and work backwards from there.
This way, you will see the size of contributions you need to make each month, and how close you will be able to get to your ideal income level.
You’ll need to think about how much money you would like to live on and how long it needs to last, especially as the age that you start getting the State Pension is increasing.
Are there other ways to save for my retirement?
It’s likely you’ll have heard the phrase ‘the sooner you start putting money aside for your retirement, the better’. However, even if you feel you’ve left it too late, you could still make a difference by taking action now.
There are other ways to save for your retirement. A pension is one of them, but you may be using your home as your long-term investment, or you could have other investments that you hope will perform to match your expectations in later life.
Pensions are a long-term investment, as the sooner you start putting money aside for your retirement, the better – even if you’re saving a small amount. They’re also a tax-efficient way of putting money aside.
Can I supplement my work pension with private savings?
Once you know your target pension amount, and what you need to pay each month to get there, you can then make your contributions into the recommended savings vehicles.
You’re likely to have a pension through your employer – that’s a good place to start, and it should be the bedrock for your other savings.
However, it may pay to supplement your occupational pension with private savings in an Individual Savings Account (ISA), which is highly tax-efficient and very flexible and can give you some more options when you arrive at the time you would like to retire. ISAs may allow you to retire slightly earlier, for example, while leaving your pension savings to continue to grow in the stock market.
 Research conducted by Opinium Research amongst 5,000 UK adults between 30 August and 5 September 2018.
: Source: iress The Exchange 12/9/2019; healthy life rates at age 65, no tax-free cash taken, single life, level, monthly in advance, no guarantee.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT.
THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.