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Making a retirement plan

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Last updated: May 1, 2024

Many people believe making a retirement plan is about money. And they aren’t wrong, but there is much more to it than figures.

When thinking about life after work, it’s always wise to envisage what that might look like for you rather than thinking solely about what it could cost.

For instance, do you want to move home, travel the world, spend more time with friends and family, enjoy dining out, play more sport, volunteer for a charity? The list is endless.  

Working out how you want to spend the extra time you will have is an essential step to understanding how much income you will need. Once you know the kinds of activities that will fill your days and week, you can put a cost against them, plus your current utilities and any other overheads. But, without that, it’s just a finger in the air exercise.

Secondly, it can also be a very fun exercise. Now is the time to think big and put all your ideas on the table – deciding what’s possible comes later.

Purpose-filled days

In terms of a retirement vision, the most important thing to remember is to keep it meaningful. If you’ve been working for many years, going from a routine to having the whole day to yourself can be challenge. Making sure you feel fulfilled and have a purpose in retirement is key. That can be anything meaningful to you: from spending time with friends and family, charity work, fitness, mindfulness, home renovations, travel, gardening – you name it. Disclaimer: this doesn’t mean you shouldn’t relax, too!

Retirement doesn’t have to mean the end of your career

Think of retirement as a new chapter – not just the end of one. There are a few ways you can consider your new work-life.

  • Moving into part-time work as you build up to full retirement. Dipping your toe in by ‘semi-retiring’ can be a comfortable way to ease into the later stages of your career. Of course, the benefit is still earning money to build up that retirement fund but also a way of transitioning the retirement mindset.
  • Retiring from your current career and starting a side-hustle. Do you have a hobby or passion you’d like to dedicate more time to? If you have an entrepreneurial spirit, you may well be able to make money from it. If you’re thinking of retirement, now could be a great time to take the leap to become a business owner. It can be as big or small as you want it to be – the key is that is suits the lifestyle you want to build.
  • If your experience suits, try a consultancy role, only accepting work you find fulfilling.

Obviously, there is also full retirement and if that sounds like your most preferred option then go for it – you’ve worked hard enough.

We’ve spoken more about mentally preparing for retirement here if you’d like to read more.

For any of the above, we’d always advise speaking to a financial adviser to understand how much you need and how much flexibility there is with your goals. We’ll cover that later on.

When to start thinking about retirement?

Honestly, the younger the better, but you don’t need to worry, you can take a fairly relaxed approach until later in life. Take the first steps, then build up to a more thorough plan as you approach your ideal retirement age.

We’ve written a general timeline below but would like to stress that it’s not a one-size-fits-all approach. Everyone’s retirement journey looks different.

That said, here is a broad guideline to give an idea:

In your 20s: Set up a pension and, if you are employed, ensure your employer matches it so you are maximising your contributions.

In your 30s: You may want to increase your contributions if your income allows it.

Our Check-In Service ensures you're making the most of your savings, investments, and pensions. Your 20s and 30s are a great time to review your current plan to set yourself up for a financially secure future.

In your 40s: This is where you might want to think about retirement in more detail. Questions like ‘What is your forecast retirement income?’ and ‘Is there a shortfall or are you on track?’ are good to have the answer to so you can make changes to your financial affairs if needed. An impartial opinion from a financial adviser is useful as they can provide a cash flow forecast to illustrate your future income and affordability.

In your 50s: You can access some personal pensions from the age of 55 (increasing to 57 in 2028), but it’s worth getting financial advice beforehand. If you would like to retire within the next 5 years, ongoing guidance from a financial adviser is valuable at this point. As well as cash flow modelling, they can leverage your current assets by utilising tax allowances, re-structuring your investments, changing the level of risk taken or using pension flexibilities. This is the ‘Financial Plan’.

In your 60s: You can access your state pension in your late 60s – the exact age differs depending on when you started work.Again, this is just one part of the financial plan and, ideally, you will have a full picture of what retirement will look like. Engaging with an adviser will help you plan a stable and affordable income throughout your retirement.

Already retired: There is no correct age to retire, it completely depends on your personal circumstances. What we would say is, once you are retired, keep checking in with your financial plan to give you peace of mind. Cash flow planning is a great tool to review whether your current income and spending is affordable, and may even highlight areas where you can spend more! It’s also a good idea to keep on top of legislation and tax-efficiency, something we can support you with.

How to build the Financial Plan for retirement

Here are our top tips for making the most of your money in retirement…

Use tax allowances and exemptions to their full capacity

Don’t pay more tax than you need to, the thresholds are there for a reason! These include the following but are subject to change depending on the government budget:

  • Income Tax allowances
  • The Dividend allowance
  • 5% return of capital allowance from investment bonds
  • Personal savings allowance
  • ISA allowance
  • Capital Gains Tax allowance

Plan together

If you are a couple and consider your finances joint in any way, plan together so income and assets are allocated effectively. By planning together, couples can use allowances to maximise the amount of tax-free income available.

Take a cash-first approach to spending

For peace of mind, we recommend keeping an emergency cash buffer fund that covers 1-3 years of spending in retirement. After that, you may want to consider spending cash first, followed by taxable investments, ISAs, and finally pensions. This leaves most of your funds invested which, over time, is more profitable thanks to market returns. For example, the average annual return for the S&P 500 since 1926 has been 10.4%*, whereas the current official bank rate is 5.25%**.

If you can, leave your pension alone

Sounds hypocritical, we know, but your pension is one of the most tax-efficient investments you can have. So, if you have other income streams, it may be prudent to defer drawing on your pension. Since pension funds benefit from tax free growth, interest, and dividends, leaving your pension invested is especially useful for maintaining capital value. Plus, pension funds are usually not subject to IHT (Inheritance Tax).

Make the most of your ISA

ISAs offer additional flexibility since their growth, interest, and dividends are all free of tax and you can withdraw money tax-free without restriction. They can also be passed between spouses on death. ISAs are ideal for big ad hoc purchases, topping up your income, and making your finances more efficient by moving taxable funds into them.

A sound financial plan will make the most of ISAs, Pensions and other investments and we will recommend drawing down from the investments in the most tax efficient way. There is no 'one-size fit's all' approach.

*NY Times - After a rip roaring 2023, the markets are taking a breather

**Bank of England database - Official Bank Rate history

This content is for information purposes and should not be treated as financial advice. We would always recommend speaking to a professional before making decisions regarding your wealth. The value of investments can fall as well as rise and you may not get back the amount originally invested. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. Even a long-term investment approach cannot guarantee a profit.
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