Retirement: why putting a plan together is easier than you think
Too many people are doing too little about their retirement, but the good news is that it’s easy to start forming a plan. The sooner you start, the better your chances of retiring well.
It’s never been more important to ensure we have enough to live on when we finish working. Life expectancy in the UK has reached 79 for men and 83 for women. And the state pension won’t get you very far. Meanwhile, employers are not as generous as they were when it comes to helping you build up a pension pot.
So setting aside money while we’re working, and starting as early as possible, is only common sense. But it seems that when it comes to pensions, common sense isn’t common enough. The average 50 to 64-year-old has just £29,000 in their workplace pension. That’s not nearly enough to provide a comfortable retirement income. It implies that a 65-year-old will have only around £1,720 a year over and above their State Pension.
The easy way to start planning
If you haven’t done much about your pension, start by deciding what you would consider a decent retirement income, then work out how much you need to save to get there.
When you consider your retirement income, remember to take into account inflation, which nibbles away the value of money over time. Build in a projection of what inflation is likely to be. Check on the level of the state pension. And consider different savings options such as Individual Savings Accounts (ISAs) to help you reach your retirement income target.
What to do when you reach retirement
Recent proposed changes in pension legislation mean that you now have much more control over when and how you can use your pension savings to help with your retirement. The changes, which came into effect from April 2015, allow you to keep your pension invested for longer while providing an income stream for you from the pension investment. You still have the choice of securing a guaranteed income for life through buying an ‘annuity’ product that, for many years, was the only solution available. And if you wish you can even withdraw your whole pension as a lump sum in one go (although this could result in a hefty tax bill).
So as you near retirement, you will have several decisions to make about how to use the money you’ve amassed.
With so many options now available to retirees, you may wish to talk to a financial adviser, who can help you narrow down what might be appropriate for your needs and goals – and help you put a plan together.