If you expect to retire in the next 10 years, your attention is probably currently focused on earning money and saving for your future.
Although still some time away, it's sensible to start thinking about life in retirement long before you finish work for good.
Rather than let time slip through your fingers, taking a proactive approach to your retirement could help you attain your ideal future lifestyle. So here are seven serious questions to start thinking about today.
1. When do I want to retire?
As with so many things in life, timing matters. As a result, the first thing to decide is when you want to retire.
Whether you're counting down the days until your last day of work or find the idea of stopping work altogether difficult to imagine, having an idea of when you'd like to retire will help gain a better understanding of your financial needs.
These days, retiring doesn’t have to be an all-or-nothing decision. More and more people are choosing to take a “phased” retirement, where they reduce their hours or take on a consultancy role.
Read more: Pros and cons of easing your way into a phased retirement
While your chosen retirement age needn’t be set in stone, it is useful to have a rough date to work towards. This will help you work out whether you’ve saved enough money for your retirement and whether your current investments are appropriately structured.
2. What do I want to do in retirement?
Everyone's idea of retirement is different, and knowing how you'd like yours to take shape is a key question to ask yourself.
The options are only curtailed by your imagination, some common goals for soon-to-be retirees are to:
- Spend more time with family and loved ones
- Volunteer for a good cause
- Take up a new hobby
- Travel the world
- Spend time sprucing up and enjoying the garden.
How you plan to spend your retirement will affect how much money you need. For example, travelling the world will cost a lot more than spending time in your garden, or helping to look after your grandchildren.
3. Where do I want to spend my retirement?
Do you want to remain where you are when you retire or move to a different house, or relocate to another region or country?
You may be happy to stay in the family home and have no intention of moving away from your local neighbourhood and friends. Or perhaps the idea of moving somewhere smaller and more manageable appeals.
You may even decide to keep the family home and buy a second home, allowing you to divide your time between locations, which can be a good way to enjoy year-round sunshine.
Where you’ll live when you retire is an emotional decision, and one that might also affect your family and loved ones. Your intentions may also affect your income and lead you to having to adjust your plan to ensure your retirement income remains as tax-efficient as possible.
With offices around the world, our expert advisers can help with the decision-making and practicalities of planning an efficient income in retirement, no matter where you decide to live.
4. How much will my lifestyle cost?
Now you’ve thought about when, how, and where you want to retire, you’re ready to calculate whether you can afford the retirement lifestyle you’d like.
Research from Which? revealed that the average retired household in the UK spends around £28,000 a year (after tax). This level of income covers all the essential areas of expenditure as well as some luxuries, such as European holidays, hobbies, and eating out.
If you want a more luxurious retirement, including long-haul trips and a new car every five years, Which? estimated you will need £44,000 a year.
Your ideas for retirement don’t have to be set in stone and you may want to make changes in the future, but they can provide a clear direction as you devise your retirement plan with a clear direction.
5. How long will my retirement last?
Of course, having “enough” on the first day of retirement is only the beginning – you also need to ensure you don’t run out of money. This means that you need to think about your own life-expectancy, and that of your partner or spouse.
According to the life expectancy calculator from the Office for National Statistics, a man currently aged 50, will, on average live to age 84, while a women aged 50 will live on average to age 87.
A 50-year-old man today also has a 1 in 4 chance of reaching age 93 and 1 in 10 chance of living to age 97. Meanwhile a 50-year old woman has a 1 in 4 chance of reaching age 95 and 1 in 10 chance of celebrating their 99th birthday.
Remember, these figures are based on UK “averages” and will vary based on location, as well as health and previous occupation. That being said, they are a useful reminder that it is important to plan for the possibility of living a long life so that you can mitigate the risk of outliving your income as much as possible.
As a result, it’s important to think about the implications of having a long-lasting retirement. And getting an accurate measure of whether you have “enough” both now and in the future is complex. This is especially true when you factor in the potential of needing to pay for long-term care and, depending on your circumstances, there may be other variables that require careful planning.
Taking all your sources of income into account, we can help you devise a sustainable income strategy that will ensure you can live the lifestyle you want, as tax-efficiently as possible.
6. Where will my retirement income come from?
Your pension income will likely come from several different sources and fall into three categories:
- State Pensions: depending on where you live, your UK State Pension won’t necessarily be index-linked.
- UK pensions: These could be defined contribution (DC) pensions, such as workplace pensions, auto-enrolment pensions from previous employers, or defined benefit (DB) schemes (also known as “Final Salary” pensions). Any pensions paid in the UK while you are living in abroad may be subject to tax and will also be subject to fluctuations in the exchange rate between the two countries.
- QROPS: If you’ve been living and working abroad for a while, you may have transferred your UK pension into a QROPS. The tax you’ll be charged varies depending on where you are living. We can help you understand how your QROPS pension is likely to be taxed.
You may have other investments that you intend to use for income in retirement. These could include:
- ISAs (Individual Savings Accounts)
- Other investments such as managed portfolios
- Shares
- Rental property
- Onshore and offshore bonds.
7. Have I saved enough money?
If you know you have enough, you’re in good shape and ready to move on to planning when you’ll start enjoying the freedom of retirement.
If you haven’t saved up as much money as you’d like, there’s still time to make up the shortfall – this is why thinking ahead is so important.
The most obvious way of boosting your retirement pot is to pay extra money into your pension. This could be through a lump sum – for example, an inheritance or bonus – or by increasing your regular contributions.
Alternatively, you could delay your retirement and work for longer.
Leaving your pension invested for longer gives it extra time to benefit from potential stock market growth. Also, retiring later will mean your money won’t have to last for quite as long.
When thinking about your retirement income, you’ll also need to factor in taxation, inflation, and investment returns. If you’re retiring abroad, remember to include fluctuations in the exchange rate in your calculations, as well as your domicile and residency status.
It can be difficult to calculate exactly how much money you’ve saved, let alone work out whether it’s enough to meet your retirement goals. We can help you with this.
We use cashflow modelling tools to show how long your money is likely to last and what affect small changes could make. Through regular meetings, we’ll ensure your finances remain on track.
Get in touch
We have extensive experience in advising clients about retirement planning and are here to support you in your transition from work to retirement.
When you approach us to understand if you’re on track for retirement, we’ll assess your assets and the steps you’re currently taking. We’ll also take the time to understand what your priorities are and what your dream retirement looks like.
It’s never too soon to start planning for a comfortable retirement. If you’d like help to create a financial plan to structure a tax-efficient income in retirement, please get in touch.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.
The Financial Conduct Authority does not regulate cashflow planning.
