It might feel like it’s a long way off, but it’s never too early to start making plans for your retirement. Unfortunately, it’s common for people to approach this time of their life with little or no idea about what they’re going to do.
They haven’t thought about how much money they’ll need or where it’s going to come from. Admittedly, there is the standard state pension, but is that enough to cover living expenses? If not, what can you do about it?
Planning for retirement means you’ll be able to build the financial cushion that will make life more comfortable, secure, and fun. And of course, preparing for ill-health and even your final demise by making a will or setting up a Lasting Power of Attorney are important parts of the retirement planning process.
When should you start planning for retirement?
Early planning for retirement will make things much easier. Making yourself familiar with all your options, means you can feel more relaxed about the whole process. You’ll also be better placed to make the right decisions about what is an important phase in your life.
There’s lots of help and advice available out there, for example, planning for retirement books. You could also get guidance from a financial advisor. But there are 5 essential steps that anyone would follow in general.
Plan your retirement step-by-step
1. Learn all about State Pension
The State Pension is a regular payment you can claim from the government when you reach State Pension age (SPA). How much you get and when you’re eligible will depend on your age and National Insurance contributions.
You usually need at least 10 qualifying years on your National Insurance record to get the new State Pension. If you have a 35-year National Insurance record, you may qualify for the full new State Pension. For the 2021/22 tax year, the full new State Pension level is £179.60 per week.
You might also be able to claim a state benefit called Pension Credit. This is an income-related benefit that could top up the amount you receive each week.
There’s nothing to stop you from retiring early, however the earliest that state retirement benefits can be paid is age 66, unless you’re granted ill-health benefits.
The government sets the minimum retirement age and the State Pension Age is currently 66 years for both men and women. However, it is now based on your date of birth rather than simple age and will increase to 67 by the year 2028.
You will receive a letter when you are able to start claiming your state pension benefits and this will give you the option to claim or delay (defer) the payments and how to do this. Choosing to defer could increase your payments when you eventually decide to claim your pension.
You can keep working after you reach the State Pension age. Usually, you can work for as long as you want to. It’s also possible to claim your State Pension while you’re working.
2. Begin your financial planning for retirement early
After you retire, you can finally do the things you’ve always wanted to do but didn’t have the time to pursue. However, financial security will definitely make it easier to complete any bucket-list! That’s why the sooner you begin your financial planning, the better.
Starting early means you can put away smaller amounts each month and enjoy the benefits of compound interest.
It’s also much easier the earlier you start. For example, sustained saving a small amount over a 30-year period will still achieve the same goal as aggressively saving for ten years.
In addition, you’ll enjoy a more relaxed transition into retirement with less worry and a more comfortable life after retirement.
Manage your finances properly, and it might even be possible to retire early and chase the dreams you’ve always had while you are in good health. That’s another reason why early financial planning is crucial.
If you want to make sure you’re ready for retirement, there are some steps you need to take:
Review your income sources: Make a list of your assets and income sources. It’s important to understand where your retirement income will come from. Your assets may include:
- Private or workplace pension pots
- Savings and investments
- Your home - you may be able to downsize or release equity
- Other property that you can let or sell
- Other sources of income post retirement
Calculate your retirement needs: Work out the minimum you’ll need to spend each year to have an acceptable lifestyle. Start with your basic “survival budget” before worrying about luxuries and holidays.
Consider life insurance or funeral plans: The cost of dying is something that keeps on increasing, so it’s a good idea to make preparations now rather than wait until the last minute. It will also mean your loved ones won’t have to pay for your funeral themselves.
Pay off your debts: Paying off your debts is a massive priority, even above building up savings. The interest on debts will far outstrip any savings interest you might earn.
Pay off your mortgage: If you can afford it, try to make overpayments on your mortgage. Just be aware that some mortgage providers charge penalties for early repayment of the loan.
3. Work out your retirement income
There are several things you need to determine, for example:
- The amount of your State Pension: Request a State Pension statement from the GOV.UK website.
- How much you might get from any defined benefit pension: You can ask your pension provider for a retirement quote.
- How much you’ll have in your defined contribution pension pot: You should receive an annual statement that shows how much is in your pot.
- Total up any savings and investments you could use for your retirement. Of course, a pension is an excellent way to save for retirement, but it’s not the only option. Other savings or investments could make a difference to your future income.
- Trace any lost pensions: If you’ve lost track of any old pensions, there is a free service that will help you trace them.
If you need any help working out your retirement income, there are lots of calculators for retirement planning and financial planning tools for retirement you can find online.
4. Research the different types of Wills
Making a Will is crucial because it’s the best way to make sure your money, property, possessions, and investments go to the people and causes you care about.
When it comes to writing one, there are different types of wills you can choose. For example:
Standard Wills. These are designed to ensure your assets pass as efficiently as possible once the will is read. You can nominate your spouse, partner, civil partner as an executor/trustee, plus one other executor/trustee if you wish. There are various types of Will:
- Simple Wills
- Mirror Wills
- Mutual Wills
- Statutory Wills
Trust Wills. A Trust Will offers increased protection for your family. They are an excellent idea in specific situations, for example, if you have a partner but children from a previous relationship. Also, if you want to protect your estate from care fees or you want to look after the interests of a vulnerable or disabled person after you die. There are several different Trust Wills, for example:
- Property Trust Wills
- Asset Protection Trust Wills
- Life Interest Trust Wills
- Discretionary Trust Wills
- Flexible Trust Wills
Living Wills. A living will is also known as an advanced decision. It is an option if you’re worried you might not be of sound mind in the future, for example, if you’re living with a deteriorating illness such as Alzheimer’s.
5. Enjoy your life after retirement
From keeping fit and healthy to making the mental adjustment, here are some tips to help you make the most of your new-found free time and enjoy your life after retirement to the max.
- Get your finances in order: If you gradually reduce your spending in the lead-up to retirement, it’ll make it easier to adjust.
- Wind down gently: If you want a smooth transition into retirement, it’s best to do it in stages. Ease off the workload over several years if possible and fill your new spare time in other ways.
- Prepare for the ups and downs: Retirement is a big life change and so you may experience a range of emotions, including moments when you’re feeling a little lost or lonely. You might also find yourself wondering about th ned of life, even how to accept death. Accept that these thoughts are natural and work on thinking positively. Sharing any concerns you have with others can be very helpful.
- Eat well: Eating regularly is important, and having extra time creates an opportunity to explore healthier cooking options.
- Maintain a routine: After a busy working life it might be tempting to lie-in or stay at home, but life will feel more normal if you continue getting up, eating, and going to bed at roughly the same time every day. Planning in regular activities is a great way to keep things interesting and give you purpose.
- Exercise your mind: Learning something new will help you stay engaged and independent. Use your free time to continue to challenge yourself mentally. The University of the Third Age offers the change to explore a huge range of topics with other people in your local area.
- Keep physically active: Aim for at least 150 minutes of moderate-intensity physical activity every week.
- Keep in touch with friends: Just because you’re retired, it doesn’t mean you have to lose touch with friends you made in the workplace. Have regular catch-ups, and you might also want to catch up with old friends that you’ve not seen for a while.
- Pamper yourself: Treat yourself to some “me time.” Enjoy a city break, a day trip to a spa, dining out, or going to the cinema.
- Push your boundaries: It’s easy to get stuck in a rut, but retirement is a fantastic opportunity to try different things and meet new people. THis can range from the simplest changes, such as joining an exercise class to learning a new skill or volunteering for a local charity.
- Take up a new project: Now you’ve got the time to get stuck into all those things you’ve been meaning to do but never got around to!
Let your family know about your plans
Remember to share your retirement plans with your family, as it will give everyone the opportunity to ask questions, voice concerns, and explain their points of view.
Getting your family on board with your plans will also avoid confusion and disagreements if ever a crisis occurs. Your loved ones may also have valuable input that could help you finalise your decisions.
Although things are ultimately up to you, involving your family can help everyone experience greater peace of mind in the long run.
Get a step further to a happy retirement by starting important conversations with your loved ones. Share your funeral wishes for peace of mind.