Most of us crave stability in our life. We like the comfort of knowing the sun will rise each day and what time our tea will be on the table. Even those that live on the edge will have been thrown for a loop by the recent pandemic. Covid-19 has affected every aspect our lives but possibly none more so than the financial worries it has brought about for much of the population. One of the most important areas of financial advice is retirement planning and you may be thinking about how the pandemic will impact your ability to retire.
We wanted to tell you about a few things you can do to make one of the most important periods of your life a little more certain. So, what can you do?
Ensure you have a suitable emergency fundWe recommend holding between three and six month’s essential expenditure in cash. This was highlighted by the pandemic when many jobs (or at least salaries) were cut overnight. This buffer softens the immediate panic and allows you breathing room to plan and rebuild.
Check your state pension entitlement
The State Pension is one of the most valuable, but often overlooked, sources of income in retirement. It provides a guaranteed source of income for life that will increase in payment and keep pace with inflation. A good starting point is to find out when your State Pension will be paid and how much you are entitled to. You will also find out how many more years of National Insurance Contributions you need to pay to be entitled to the full amount.Check your entitlement at www.gov.uk/check-state-pension.
Consider your retirement date
An easy way to add certainty to your retirement is to work towards a planned date. This allows you to take stock of where you are and what you need to do to meet your aims by your retirement date. This could be sorting payments on your mortgage so you retire debt free, or increasing your pension contributions to make the most of tax relief while you are working.
Calculate your retirement expenditure; be meticulous!
Here you cannot plan too thoroughly. Start by knowing what you spend now, and how this might change in retirement. Will your costs initially decrease due to less travel to work, but then increase as you want to treat yourself to more holidays?Factor in any lump sum needs you may have and how you plan to finance them. This could be the cruise of a lifetime or helping your children with house deposits; it all needs to be factored in.
Consider your current pensions and investments and their access options
One of the most important considerations is what you have and how you can get a hold of it. For example, you cannot access pension funds until age 55 (due to rise to 57 by 2028). If you plan to retire before then, you need to build some other form of accessible savings pot. You could consider other investment vehicles that can be accessed at any time.
When it comes to your pensions, you may have several access options.
Annuity – A guaranteed income for life. An annuity that meets your essential expenditure can provide the ultimate certainty in retirement.
Flexi access drawdown – Draw a tax efficient non-guaranteed income. Your fund can remain invested for life with the potential for growth, but is subject to investment risk.
The best way to sort through your options and what may be suitable is to speak to an adviser.
Seek financial advice
We are here to help with any concerns you may have about your finances. We can provide anything from a simple assessment of ‘can I still retire?’ to a full financial plan of how, when, and what to do now to ensure your retirement is a little more certain. Give us a call on 01482 219 325 or email [email protected].
Tel. 01482 219 325informedfinancialplanning.co.uk