Pensions

Planning and preparing for retirement

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Why reaching our 50s and 60s often brings retirement into sharper focus

As we navigate life, reaching our 50s and 60s often brings retirement into sharper focus. This phase heralds a well-earned respite from years of dedication and hard work. For many, retirement is envisioned as the most extended holiday of their lives, offering opportunities to travel, engage more deeply with hobbies or spend cherished moments with family and friends. However, realising this idyllic vision requires thoughtful financial planning.

Ensuring your financial affairs are in order as you approach retirement is crucial. With longer life expectancies and an ever-evolving economic landscape, having a sound financial plan ensures you can maintain your desired lifestyle without financial stress. This planning involves understanding your income sources, managing your savings and anticipating future expenses.

Determine your retirement timeline

Deciding when to retire is a pivotal step in your financial planning journey. Unlike a one-size-fits-all approach, the choice of retirement age is profoundly personal and depends on various factors, including your financial readiness, health and lifestyle aspirations. Understanding these elements can help you make an informed decision that aligns with your long-term goals.

Role of financial readiness

One of the most significant determinants of retirement age is financial readiness. Many individuals cannot retire until they can draw from their pension schemes or are eligible for the State Pension. Assessing your finances, including savings, investments and expected pension income, is crucial in determining when you can comfortably retire without compromising your standard of living.

Understanding pension options

Different pension types come with varying retirement age rules. Workplace pensions, mainly defined contribution schemes, and older defined benefit plans often set a retirement age, typically around 65. However, these can differ based on the specific terms of your pension plan. Knowing the details of your pension arrangements allows you to plan effectively for retirement.

Accessing personal pensions early

For those with personal pensions, there’s often more flexibility. Currently, personal pensions can be accessed from age 55, although this threshold is set to increase to 57 by 2028. This earlier access can provide opportunities for phased retirement, allowing you to transition gradually from full-time work to retirement while supplementing your income with pension withdrawals.

Considerations for early retirement

Choosing to retire early can have significant financial implications. Early access to pensions means smaller annual payouts, as your pension pot needs to sustain you for a longer retirement. Additionally, retiring before reaching State Pension age means you will need to bridge the income gap until those benefits become available.

Balancing lifestyle and financial security

Deciding when to retire should balance your desired lifestyle with financial security. Some may continue working part-time to maintain an active lifestyle and financial health, while others prioritise leisure and personal pursuits. Evaluating your priorities and consulting with us will help clarify the best path forward.

Understanding your retirement income sources

Planning for retirement is crucial to ensuring a comfortable and secure future. One of the most important aspects of retirement planning is understanding your potential sources and values of retirement income. This involves gathering comprehensive details about your pensions, savings and investments. Once you have these details, obtaining estimates from each source will help you gauge the total income you might expect upon retirement.

Estimating income from savings and investments

Begin by compiling information on all your savings and investment accounts. This includes personal savings accounts, stocks, bonds and any other investment vehicles you own. Understanding this will help you strategise effectively for your future financial needs.

Planning your retirement income

Evaluate whether the combined income from your pensions and State Pension will suffice for your desired retirement lifestyle. Generally, you may need around two-thirds of your preretirement
salary after tax to maintain your lifestyle, though individual needs vary.

Boosting your pension contributions

Planning for retirement involves more than just setting aside a portion of your income; it requires strategic thinking about maximising your pension contributions. If there’s a likelihood of a shortfall in your future pension income, it’s prudent to consider increasing your pension savings now. Even minor adjustments to your contributions can have a notable impact on your pension pot, thanks to the power of compounding interest.

Understanding the impact of contributions
Many individuals adhere to the minimum contribution levels set by auto-enrolment schemes. While these minimums provide a good foundation, contributing more than the baseline can significantly enhance your financial security in retirement. The carryforward rules further support this strategy, allowing you to utilise unused allowance from the previous three years to maximise
your contributions where you have sufficient relevant UK earnings to support the contribution and obtain tax relief.

READY TO TAKE PROACTIVE STEPS IN YOUR RETIREMENT PLANNING?

Secure your financial future by taking proactive steps in your retirement planning today. If you need expert guidance or want to explore your pension options further, we are here to assist you.

Contact us to confidently navigate this crucial journey, ensuring that your retirement plans meet your long-term goals. Let us support you in making informed decisions for a secure and comfortable retirement.

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Financial advice when planning retirement

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People who are confident about their retirement are most likely to have specific retirement goals and know what steps they need to take to reach them. But sadly, we see many people do not feel confident that they will have enough savings to live comfortably after they retire.

Many people have a fear of outliving their money, but most don’t have a clear idea of how much money they need during retirement. It’s important to remember that retirement doesn’t happen at a certain age, it happens when you have enough money to live on.

Seeking professional financial advice can help create a clear direction and understanding which will give you peace of mind that you are on the right track.

If you’d like to discuss your retirement, and would like to speak to an expert Financial Adviser, please get in touch:

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Financial advice during Divorce

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Divorce can be bewildering, especially when managing your finances. However, understanding your options can make the process more manageable. Financial concerns may not be your first thought during a marital breakdown. Still, given the significant impact divorce can have on your financial future, it’s crucial to take proactive steps to safeguard your financial security.

Download our guide to Financial advice during Divorce to find out how you can secure your future.

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Supporting clients through divorce

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Financial Advisor, Carol Lammy-Steele, explains how she helped to enhance a client’s life by providing help and support to someone going through a divorce.

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Navigating the financial aspects of Divorce

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We understand the complexities of divorce and finances and are here to help you make informed decisions. If you’d like more information on pensions and divorce, please get in touch:

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Is it time to give your pensions a health check?

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Entering your 50s is not just another chapter in your life; it’s a profound and exciting phase in your financial journey. By this time, life may have settled into a more predictable rhythm. Perhaps your children are financially independent, and your career is at a peak, providing a stable income.

Pension review

In your 50s, a pension review is pivotal in preparing for a secure retirement. This review thoroughly evaluates your current pension plans to understand their performance and projected future income.

Conducting this review ensures that you know how on track you are to achieving a comfortable retirement, providing you with confidence and clarity as you approach this life stage.

Obtain a State Pension forecast: If you haven’t already done so you can obtain a State Pension forecast from the Gov.uk website.

Review pension statements: Gather and review your latest pension statements to understand your current savings and projected retirement income.

Evaluate progress: Check if you are on track to meet your retirement goals. Consider factors like your desired retirement age and lifestyle.

Consolidate your pension pots: If you have had more than one employer in your lifetime, you’ll probably have more than one pension pot, too. If appropriate, consider transferring your old pensions and combining them under one roof, giving you more control of your money and where you’re invested in the run-up to and in retirement.

Envision your future: Start imagining what retirement might look like for you. Consider travel, hobbies, part-time work or any other aspirations.

Have a retirement plan: A general idea of your retirement goals can help shape your financial planning and savings strategy.

Amplified retirement savings: If appropriate, you can boost your pension contributions to increase the overall amount saved, creating a larger pool of funds to support your retirement lifestyle. Even small increases can lead to substantial growth, ensuring you have more resources to draw upon in your golden years.

Power of compounding: One of the most important aspects of saving for retirement is the effects of compounding, which allows your money to grow exponentially. The earlier and
more you contribute, the more time your savings have to benefit from compounding. This means your contributions not only earn interest, but that interest also earns interest, leading to significant growth over the years.

Tax relief advantages: Pension contributions are highly tax-efficient. Depending on your tax bracket, you receive tax relief on the money you contribute, effectively reducing the net cost of your contributions. For example, if you’re a basic rate taxpayer, a £1,000 contribution might only cost you £800 after tax relief. This government top-up adds an extra layer of growth to your pension fund, enhancing its value.

Increase financial security: By ensuring you have sufficient savings for retirement, you reduce the risk of financial insecurity later in life. This financial cushion can help maintain your standard of living and provide peace of mind that you won’t outlive your savings.

Flexibility and options in retirement: A larger pension pot provides more choices when it comes to retirement planning. Whether you want to travel, pursue hobbies or ensure you can cover healthcare costs, having additional funds gives you the freedom to make these decisions without financial constraints.

Protection against inflation: Increasing contributions helps counteract the eroding effect of inflation on your savings. As the cost of living rises, having a robust pension fund means you’re better positioned to keep up with expenses, maintaining your purchasing power well into retirement.

Discuss retirement plans: Share your retirement goals and plans with your family to ensure everyone is on the same page.

Involve your partner: If applicable, coordinate financial planning efforts with your partner to optimise joint retirement outcomes.

Track investment performance: Regularly check how your pension investments perform against projections.

Adjust investment strategy: Be open to adjusting your investment strategy if your pension isn’t growing as expected.

Understand your Pension Annual Allowance: Check your Pension Annual Allowance, typically £60,000 or 100% of your UK relevant earnings, whichever is lower. If you have no relevant earnings, up to £3,600 could qualify for tax relief. Note any reductions if you have a high income or have triggered the Money Purchase Annual Allowance (MPAA).

Explore carry-forward options: Investigate the possibility of carrying forward unused allowances from the previous three tax years. !is can be complex, so ensure you meet the eligibility criteria.

Optimise Individual Savings Account (ISA) contributions: Consider contributing up to the £20,000 limit in the 2024/25 tax year. ISAs offer tax-efficient growth and withdrawals, making
them an effective savings tool.

Choose the suitable ISA: Examine your balance between cash and investments. Decide between Cash ISAs or Stocks & Shares ISAs based on your risk tolerance, capacity for loss and financial goals.

Capital Gains Tax exemption: Be aware of the annual Capital Gains Tax exemption, which allows you to realise gains up to a certain amount without paying tax (£3,000 in 2024/25). Plan
asset sales accordingly.

Dividend and Personal Savings Allowance: Utilise the Dividend and Personal Savings Allowance to minimise taxes on investment income and savings income.

Review annually: Make it a habit to review your tax strategy annually, ensuring it aligns with your goals  and takes full advantage of available allowances.

Discuss financial strategies: Share your tax planning strategies with your family to ensure they understand and can support your financial decisions.

If you would like to give your pensions a health check, get in touch today:

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Mastering Financial Fitness in your 50s

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Thoughts of winding down or retiring might be dancing on the horizon. This is why it’s a pivotal moment to take a comprehensive look at your financial situation and ensure you’re on the right path to achieving your future goals.

This decade is a golden opportunity to fortify your financial foundation for the years ahead.

In our latest guide we help you focus on key areas and establish a solid financial foundation for the years ahead.

To download your free guide, head to our downloads page:

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Guide to Making the Most of Your Pension

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How to turn your pension savings into an income for life.

There are many things to consider as you approach retirement. It’s good to start by reviewing your finances to ensure your future income will allow you to enjoy the lifestyle you want.

The earlier you start thinking about what you’ll need for a comfortable retirement and where your money is going to come from, the more control you can have over that period of your life.

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Pension Awareness Week

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All this week Pension Geeks and Royal London are hosting Pension Awareness week, with live shows on key topics such as pension transfers, pension contributions, financial wellbeing, pension investments, the gender pension gap and more. 

To sign up for the live shows, head to the pension awareness website: https://pensionawarenessday.com/ 

As well as the online events being held as part of Pension Awareness Week, we have a free ‘Guide to Making the most of your Pension’ available to download:

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How much do I need to save for retirement?

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Ensure your money works effectively to enjoy retirement on your own terms.

How you invest in your 50s could significantly impact your quality of life in retirement. While there still is time to increase your retirement savings, a seemingly simple mistake could derail your plans. This is where obtaining professional financial advice becomes crucial.

With retirement now in sight, as you approach this milestone, ensuring your money works effectively will allow you to enjoy retirement on your own terms.

Clarify your Goals

‘Saving enough for retirement’ has likely been on your list of financial goals for some time, but now is the moment to become more specific. Knowing exactly how much you need to save will give you a concrete target. This amount will depend on factors such as your intended retirement age, your retirement plans, projected investment growth and inflation.

A financial adviser can demonstrate how long your savings may last in retirement, helping you understand if you need to adjust your goals or savings habits.

Review your Investment Portfolio

When you are in your 50s and nearing retirement, ensuring that your investment portfolio maintains a suitable balance between risk and reward is important. The right level of investment risk depends on how you intend to fund your retirement and how far away your target retirement date is.

For those planning to buy an annuity in a few years, moving your pension fund from stocks to lower-risk assets such as cash may be wise. This strategy helps protect your pension pot from potential stock market crashes just before you need it.

Maintain Growth Potential with Diversified Assets

If you plan to fund your retirement through income drawdown or other savings and investments, moving into cash too early could mean your money does not last as long as required. Retaining some exposure to stocks allows your portfolio the opportunity for long- term growth. Considering that your retirement could span several decades, inflation will inevitably erode the real value of your savings and reduce your purchasing power.

One way to mitigate the impact of rising prices is to remain invested in the stock market. Historical data shows that the stock market generally outperforms cash over long periods and exceeds the inflation rate. Diversifying your investments across various asset classes can help your portfolio withstand stock market fluctuations.

Focus on your Pension

Pensions are an exceptionally efficient method of saving for retirement, particularly when you’re in your 50s.This is largely due to the tax relief you receive on personal pension contributions. For instance, a £1,000 pension contribution costs just £800 if you’re a basic rate taxpayer, £600 if you’re a higher rate taxpayer or £550 if you’re an additional rate taxpayer. Tax relief is essentially free money from the Government, significantly enhancing your retirement savings.

Most individuals can contribute up to 100% of their UK relevant earnings or £60,000, or £3,600 if there are no relevant earnings (whichever is lower) into pensions yearly while still benefiting from tax relief until age 75. However, it is important to remember that your pension annual allowance could be lower if you have a very high income or have triggered the MPAA.

Maximising Unused Allowances

If you wish to save more than your annual allowance, it might be possible to maximise unused allowances from the previous three tax years under carry-forward rules. This strategy can considerably enhance your retirement savings by utilising every available tax benefit.

Make the most of your Tax Allowances

There are numerous other tax allowances investors can utilise. For instance, you can invest up to £20,000 (tax year 2024/25) into Individual Savings Accounts (ISAS) to benefit from tax- efficient income and growth.

You can withdraw money from ISAs whenever you desire without incurring any tax; this makes ISAs a useful source of income for those retiring before age 55 (the current earliest age at which you can access your pension subject to health and certain occupations). Additionally, ISAs form an integral part of a tax-efficient retirement income portfolio.

Other Allowances to Consider

Other allowances include the personal savings allowance, dividend allowance and Capital Gains Tax exemption. You can earn up to £1,000 a year in interest without paying tax if you’re a basic rate taxpayer. If you are a higher rate taxpayer, you can earn £500 a year without paying taxes. Additional rate taxpayers don’t receive any allowance at all.

The annual Capital Gains Tax-exempt amount from 6 April 2024 is £3,000. If the total of all gains and losses in the tax year fall within this exempt amount, no tax will be payable. Gains above the annual exemption will be taxable. The exempt amount cannot be carried back or forward. The unused amount is lost if it’s not used, in part or full.

Time to optimise your pension and make the most of available tax allowances?

Please contact us for more detailed advice on optimising your pension and making the most of available tax allowances. We are ready to help you navigate the complexities of retirement planning and ensure you achieve a financially secure and comfortable retirement.

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