When you’re planning for retirement, there’s a good chance that your financial security is a top priority.
This is all well and good, though it’s also vital to consider how closely your financial security is linked to your overall happiness in the next phase of your life.
After all, retirement is your time to reap the rewards of years of hard work, and that enjoyment often relies on having a strong sense of financial stability.
A survey from FTAdviser reveals that 61% of respondents who work with financial planners name financial security as one of their top concerns.
This shows just how important it is to get on top of your financial situation as you approach retirement.
Whether that involves ensuring your income lasts for your entire retirement or preparing for unexpected costs, taking proactive steps to secure your finances now could result in considerable happiness and peace of mind when you eventually stop working.
Continue reading to discover why financial security is so valuable in retirement, how it boosts happiness, and what you can do to secure your wealth for later life.
Your financial security and overall happiness in retirement are closely linked
When you initially think of “financial security”, there’s a chance the first thing that comes to mind is having enough income to cover your expenses.
While this is an important factor in your financial security, it’s also about weathering unexpected challenges so you can enjoy your desired lifestyle without fear and plan for the future with confidence.
Unexpected costs, such as home repairs or later-life care, can strain your retirement plans considerably.
This is why it’s worth taking several steps to mitigate any potential risks and focus on the aspects of retirement that will bring you joy, such as travelling or spending time with loved ones.
What’s more, having a clear understanding of your financial situation could empower you to make more informed decisions about choosing the right investments, determining how much to draw from your pension, and more.
3 proactive steps that could increase your financial security – and happiness – in retirement
With this in mind, it’s worth thinking about how you can increase your financial security, and your happiness as a result, in retirement. Here are three proactive steps you could consider.
1. Consider an annuity
An annuity is essentially a type of insurance product that you can purchase using some, or all, of your pension pot.
In exchange, the provider pays you a guaranteed income, either for a set period or the rest of your life, depending on the type of annuity you choose.
The income you receive typically depends on several factors, namely:
- The size of your pension pot
- Current annuity rates at the time of purchase
- Your age, health, and lifestyle.
For instance, if you’re older or in poorer health, you may receive a higher income from your annuity since the provider assumes they won’t need to pay out for as long.
If you’re in the US, a fixed index annuity might be an option worth considering. These provide a guaranteed income while linking returns to the performance of a stock market index, such as the S&P 500.
While they can offer protection against market losses, they might also limit potential gains, so you may want to read our previous article that covers fixed index annuities in more detail.
The steady and predictable income annuities offer could boost your financial security in retirement, helping you to feel happier and more confident about your finances.
Interestingly, a recent study by Legal & General, who teamed up with the Happiness Research Institute, explored this by surveying 3,000 UK retirees.
Those who had purchased annuities reported significantly higher levels of financial confidence.
For instance, 51% of annuity holders said they experienced less stress about money. Meanwhile, they were 27% more likely to find their finances more predictable and manageable, PensionsAge reports.
2. Bolster your emergency fund
No matter how much you prepare for the future, there might always be unexpected expenses looming around the corner.
Whether that’s a sudden car repair, a period of illness, or even a broken boiler, an emergency fund could mean you don’t have to sell shares or take on high-interest debt to cover these costs, both of which can jeopardise your financial security.
As such, it’s worth saving between three and six months’ worth of necessary household expenses in an easy access savings account.
If you’re already retired, you might want to consider saving as much as one or two years of expenses. This way, you may not have to sell investments held in your pension at a time when markets are temporarily lower.
By having a robust emergency fund in place, you can make sure that unexpected events have less of a chance of disrupting your financial security.
3. Work with a financial planner
Above all, working with a financial planner could be one of the more effective ways to ensure your financial security and boost your happiness in retirement.
Indeed, they can provide some much-needed clarity about how much income you may need in the next phase of your life, helping you develop a sustainable withdrawal plan.
They can do so through sophisticated cashflow modelling software, which offers a detailed projection of your future finances, allowing you to see how different decisions might affect your wealth over time.
With this invaluable information at hand, you can be more confident making any decisions regarding your financial security, which could, in turn, benefit your happiness.
Get in touch
We could help you achieve the financial security you need to live a happy and fulfilling life when you stop working.
Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate cashflow planning.
