In this article, our Chartered financial planners at Punter Southall Aspire offer six crucial questions to ask yourself as you start planning for retirement.
Retirement can be a hugely exciting next chapter of life. There is more time to spend with loved ones, pursuing hobbies and enjoying a well-earned rest. Yet retirement is also a big transition - not just emotionally, but also financially. Whilst you can never be fully ready, it helps to commit time to prepare yourself for this shift in lifestyle which could last two or more decades.
In this article, our Chartered financial planners at Punter Southall Aspire offer six crucial questions to ask yourself as you near retirement - to help you prepare to make the most of it.
#1 Do I want to retire?
Perhaps retirement still feels like a long way away. Maybe you cannot imagine life without your career. Yet will that always be the case? Whilst you don’t need a “grand plan” for retirement (although this can help!), it is useful to have an idea of what your later years could ideally look like. Remember, you don’t necessarily need to retire all at once. Phased retirement (reducing working hours) whilst starting to claim pension benefits could be an option, and can be popular with public sector workers - e.g. teachers - as people want to begin “slowing down”.
#2 Where should I live?
Do you want to keep living in your current property in retirement? For many, giving up the family home is an unbearable thought after the memories created there. Others might relish the idea of a new start, perhaps in a new location and/or smaller property (e.g. one which is cheaper, out of urban areas and easier to manage). Consider the factors that may affect your decision, such as proximity to loved ones, housing costs (e.g. whether you will own or rent), weather conditions, local health facilities and nearby transport infrastructure. If you keep your home, how might this affect your expenses in retirement? If you sell, what impact might this have on your wealth (e.g. could it release funds to invest in your pension)?
#3 How will I fill my time?
According to Dr. Riley Moynes, people commonly go through 4 emotional phases after retiring. The first is the “vacation phase” (often lasting a year) when you enjoy your new-found freedom and rest. However, this is often followed by phase 2, the “loss phase”, where we start to mourn formerly cherished things such as routine, identity and work relationships. This phase often catches people by surprise and can be traumatic to move through. Those who move through it, however, get to the rewarding third and fourth phases, where we find ways to make our lives meaningful again. Planning for retirement, ahead of time, can help you minimise the pain of phase two and move more quickly to the latter ones. Planning on spending time on the things you love to do, and do well, can often be the answer - especially if this can be linked with service to others.
#4 Do I have the money?
Determining how much you need to save for retirement is no easy task. A lot can change over the years ahead (inflation, technology, the economy etc). Working with a financial planner will help you put the best forecast together of your required income. Yet a good starting point is to take your pre-retirement salary, remove a third of its value and multiply by thirty. For instance, suppose you earn £30,000 just before retirement. Lower its value to £20,000 and then multiply by thirty to arrive at a rough figure of £600,000. However, you may need significantly more (or less) than this depending on your goals and circumstances. If you plan on renting in retirement, for example, then you will likely need more than someone who has their house fully repaid. Yet those with a generous final salary pension may not need a large pension pot (when combined with their State Pension).
#5 Am I prepared for care?
According to one UK government study, around 75% of over-65s will eventually need to receive some form of care. The cost of care varies across the country and depends on the level (and duration) of care in question. Yet the cost can be high, with the average weekly cost of living in a residential care home standing at £704. Over just a year this could erode your wealth by tens of thousands of pounds. The government introduced a lifetime care “cap” of £86,000 for each person in 2021 which will come into effect in 2025. Yet this does not cover all potential costs related to care (e.g. food), and certain people could still end up paying much more. A financial planner can help you prepare your finances for the potential cost of care in later life, such as by building up a dedicated investment portfolio for this purpose.
#6 Is my estate plan in order?
What will happen to your wealth when you are gone? If there are people or causes that you would want to leave this to, as much as possible, then an estate plan will be important to help mitigate needless inheritance tax (IHT). A legally-sound will is important to this process, as is utilising various financial planning tools at your disposal such as making tax-free gifts using your “annual exception” (£3,000). Trusts can also be a useful means for distributing wealth to loved ones in the manner and timing of your choosing - e.g. when a child is over 18 and wishes to put a deposit down on a property.
Get in touch with a Punter Southall Aspire financial planner to discuss your retirement goals.