In the years leading up to your retirement, everything changes. Many people begin to look forward to a time when they won’t have to work as much as they currently do. Others look forward to having more time for their hobbies. However, regardless of your plans for retirement, they are usually dependent on money. That’s why you need to put some effort and intention into preparing for your retirement.
What Are The Pension Options Available To You?
One of the most important financial considerations when you’re planning to retire, is your pension. What kind of pension plans do you have? In the UK, there are several pension options available for individuals who are preparing for retirement. Here is a brief outline of each of them.
The state pension is the regular payment by the government. Everyone who has paid National insurance contributions is entitled to the state pension, and the amount every individual earns depends on whether they are eligible to the basic or new state pension.
A man is eligible for the new state pension if they are born on or after the 6th of April 1951, while a woman is eligible for it if they are born on or after the 6th of April 1953.
With a personal pension plan, you can choose a pension provider and invest with them. All your investments then add up to become your retirement fund, accessible after you retire.
Some employers also offer workplace pensions, and the way it works is that a certain percentage of your salary will be invested in the pension scheme. If you have a workplace pension, you’ll usually also get some tax relief from the government.
Even if you have a workplace or personal pension plan, you’ll still be entitled to state pension from the government.
Preparing For Retirement
There are several things you need to prepare when planning your retirement, and they cut across several aspects of your life, from your finances to your current debts. However, they can all be summed up into the five categories.
1. Calculate Your Likely Retirement Income
The first thing you need to do is to estimate how much you’re likely to have when you retire. It’s the number you get from this calculation that will inform your decisions on what you can reasonably expect to do during your retirement (as well as what you can’t do).
As an example, if you plan to travel after you retire, you need to know how much money you have saved up and see if you’ll have enough left over after funding your trip. This is particularly important because you don’t want to end up broke after your retirement.
The steps involved in calculating your retirement income are as follows:
- Getting a statement of your state pension: If you’re entitled to the state pension, getting a statement of your pension is a great place to start. This amount will be based on your National Insurance contributions thus far.
- Summing up how much you have in savings, as well as your investments.
- Looking into your other pension plans. For example, if you have workplace pensions or personal pension plans, you also need to calculate those and add them to the total.
2. Look For Ways To Increase Your Pension Amount
After you’ve gotten a clear picture of how much money you’ll have after retirement, the next step is to look into how you can increase the amount. You especially want to do this in a situation where your current plan isn’t enough to fund your retirement plans.
One of the ways to do that may be to pay more money into your plans. You could also push back the date at which you can start collection. Additionally, you can also think about making some investments that can yield returns. However, you have to take precautions when considering this point, as we’ll discuss in the next point.
3. Don’t Make Any Risky Investments
When individuals nearing the age of retirement discover that they don’t have enough money saved or in their pension fund, they often get tempted to make dicey investment decisions. However, this is one of the most dangerous things you can do with your pension fund. If you lose your money, you might not be able to make enough before you retire, and that would lead to a very unpleasant retirement for you.
It’s best to seek financial advice on how best to manage your pension fund, and whether or not to invest it before making a decision like this.
4. Create a budget
Even though life after retirement is going to be very different from what you’re used to, it does have certain advantages. One of them is that you know exactly how much you have. This means that you can create a budget with some certainty, based on your current daily expenditure, as well as miscellaneous that might arise along the way.
You can also create a budget for any extra plans you might have like travelling or changing your lifestyle. If you plan to move into a new city after you retire, you should look into what the cost of living in the area is and factor it into your calculations.
5. Clear your debts
Your current financial obligations don’t immediately disappear after you retire, and so, it’s best to handle them before you do retire. There is nothing better than retiring debt free because it allows you to explore opportunities you wouldn’t be able to explore if you were in debt. Another reason you should clear your debts before you retire is that most debts have interest rates, increasing the payable amount the longer it takes you to pay back the debts.
Why You Should Plan For Retirement
People often assume that retirement works itself out and that they only need to make minimal contributions towards planning for it. This could not be farther from the truth. A couple retiring together might fantasise about travelling the world and visiting many countries, and while this is very achievable, it requires preparation.
The most significant reason to plan for retirement is financial security. After you retire, your current income will cease, and you’ll have to fall back to your other sources. Planning ensures that you’re prepared for this change and that you’ll be financially stable. With adequate preparation, you can be able to afford whatever lifestyle you want, even after you stop earning.