Here are ten points to consider when planning for retirement
For many people, the long road to savings ends with the choice of when to take annuity and which annuity to take. This will be the income guarantee that will provide you with your security in retirement.
New legislation could cost annuity providers a substantial amount of money and in turn drive down the rate of future annuities. Another key question relates to the impact of quantitative easing. Will it drive up inflation? These two factors alone will have a significant impact on pushing annuity rates up so taking an annuity today rather than deferring may well prove to be a mistake.
Those people who have 15 to 20 years to go before they retire should consider up-sizing even if this means buying a property that is too big for their actual needs. Over the medium to long term, property prices have historically risen.
Buying a larger property every, say, 5 years means that when retirement approaches the property owner should end up with a very valuable property. This can then be sold to downsize with any profit generally being tax free.
3. CURRENT PENSION PROVISION
When you begin your retirement planning, you should always check if your employer offers any type of pension arrangement. If your employer does, it is quite possible that the scheme will match any contributions that you make (up to a limit).
If this is the case, it will usually be a Money Purchase arrangement, where the level of eventual benefits will be mainly dependent on the size of the fund that has been built up at retirement – and therefore the additional ‘matched’ contributions from your employer will help you to build a bigger fund.
Alternatively your employer may offer one of the seemingly ever decreasing number of Final Salary schemes. This is where your employer effectively takes all of the investment risk by providing a benefit related to pensionable salary and service completed.
The cost of providing these benefits are underestimated by many, with the level of contribution required under an equivalent Money Purchase scheme typically being as much as three times higher than those of a Final Salary scheme member.
Work out what your total income is now, and where it might be in the coming years. If you think your income will always be under the higher rate threshold then consider whether there are any benefits in tying your money up and getting basic rate tax relief at outset and then paying basic rate tax on the income in retirement.
If, on the other hand, you think that your income will rise above the higher rate threshold, you may wish to consider delaying further contributions until you can get 40% tax relief. Getting 40% tax relief at outset and proposition.
Saving for retirement does not always mean a pension. Whilst it’s true a pension should probably form the bedrock of your retirement plans, you should not ignore the ISA.
The income from an ISA is ideal to compliment a pension: it is free from further income tax and there is no capital gains tax on the profits. On top of this, the best ISAs can be cashed in at any time, giving you access to your capital if needed. .
6. PLAN AHEAD
Do not bury your head in the sand when it comes to retirement planning. Fundamentally, pensions are something consumers may wish to forget. But if you don’t take an interest in your future, then who else will?
If you have a pension, you do not have to wait until your annual statement arrives to see what you have in your pot and more importantly, what it is likely to give you in retirement.
Ask yourself the following all important questions.
When was the last time you reviewed how much you are paying in?
Have your contributions kept pace with any increases in earnings you may have had?
Do you fully understand what fund or funds you invest in and is the risk profile of those funds still suitable for you?
Have you got old pensions sitting in poor funds with high charges?
Have you considered moving away from traditional insurance company funds and explored the possibility of different types of investments?
Do you know what charges are being deducted from your fund?
Are your retirement plans realistic?
Do you know what state pension you will get?
7. MULTIPLE SOLUTIONS
Always consider that a single product solution is often not the best strategy when planning for retirement. Thinking about how and when to draw benefits from a pension pot is every bit as important as the strategy for building up the pot in the first place.
For most people a single product solution is not the answer. The best strategy is often to employ a range of income generating methods that combine guarantees of certain base levels of income with additional strategies for allowing flexibility and escalating income potential.
8. THE TIME FACTOR
Firstly, start your retirement planning early. If your employer has a pension scheme then join it! Usually employers match your own payments or at least put in 3% to 6% of your earnings and this is a huge boost to your own savings.
Secondly, retire late. Think long term – if you are in your 20’s you may well have a life expectancy into your 90’s. When the state pension age was set at 65 life expectancy was nearer 70.
Add to this the fact that your grandparents probably started work at 16 and you may not have started work in your 20’s (after gap years and university) and you can see why you have to pay the penalty in later life! Expect to retire in your 70’s and plan your retirement accordingly.
Planning for retirement is all about ensuring that you have enough income to live the lifestyle you want when you stop working. Provision is not just the building of assets and savings to provide an income, but possibly more importantly making sure that your outgoings are as low as possible in retirement.
This means paying off debt as far as possible, so that that there is no mortgage or any other debt payments to be made from pension income. Once this has been achieved, you can then start saving without having to worry about whether your returns are higher than the rates you are paying for your borrowing.
10. SUPPLEMENT YOUR PENSION WITH AN ONLINE BUSINESS
Supplementing your personal retirement pension with an on line business has a number of attractive advantages.
You can build your on line business in your own time and at your own pace. Everything is under your personal control….not at the whim of your employer or the government.
Whatever your interests and expertise away from your job can be utilised in your embryo on line business.
The internet is an exploding marketplace hungry for new services and products.
On line marketing tools are becoming more sophisticated by the day, along with the ability to communicate with huge numbers of potential customers at the click of a key.