There was a time when pensions were relatively simple, but over the past 20 years, retirement planning has seen significant change. Final salary pensions, once common, are now increasingly rare, and the state pension age has been gradually pushed back. On the plus side, people now have more flexibility in how they can access their pension funds.
While these changes offer more options, they also require careful planning. To build a solid retirement plan, it’s essential to estimate how much income you’ll need during retirement. It's important to recognise that your financial needs will likely change at different stages of your retirement journey.
As the English playwright John Heywood so famously said, ‘’Rome wasn’t built in a day.’’ You can decide if you like the poetic nature of that quote, but what is true is very core of its meaning; you must plan and build over time if you want to create something great.
Successful retirement planning takes time and diligence, through various cycles and even in retirement still needs careful attention to detail.
In this article, we’ll explore the key stages of retirement planning to help you unlock the door to your dream retirement.
Essential Stage
The essential stage is a key period. Why? Because it’s the foundations of all that is to come. In this cycle, you will be several years away from retirement. However, we will look to ensure that you are making the best possible decisions for your retirement planning as early as possible and setting the tone for what you want out of retirement. Simply put, the longer you save the more money you’ll have. It’s never too early and, as the famous saying goes, if you fail to plan then you plan to fail. Retirement living standards change, so it is important to factor this in. Taking all assets and provisions into account, we aim to help you answer the golden question, “Am I on track to meet my retirement goals?”
At Reeves Independent, we understand that the world of pensions can often be confusing. That’s why we aim to simplify it and offer jargon-free and straightforward financial advice. To find out more please check out our Beginners Guide to Pensions.
Growth stage
This is the era in which you begin to increase the size and value of your retirement fund. Leading up to your retirement, this is the phase where – in theory – you should still be accruing wealth and at a greater rate than at any other time in your life. This is so crucial because it is the time where you can really hammer more money into your savings to ensure that you can achieve the retirement you desire.
What living standard of retirement do you want? The more you want to do the more you’ll need to save. If you are looking to boost your retirement fund, read our Ten Tips for Improving Your Pension Pot guide.
For many, your children will have left home, finished university and are finally paying their own way in life. The likelihood is that you will be in a senior position in your career, with the highest salary of your working life. As such, you can start to think about finally paying off the mortgage, whilst saving more than before as your retirement dreams come closer into your vision.
When you do decide it is the right time to retire – and you have everything ticked off for a successful retirement – there are three key retirement stages. Read on to find out more…
Pre-state pension retirement stage
This can create difficulties, as people must plug the gaps financially between retiring and receiving their state pension. That’s why the growth stage is vital, because it will ensure you have the capital you need to ensure you achieve your retirement goals.
For those who have planned well and can retire early, around 55-60, these are the golden years of your retirement. Both fit and healthy, this is a time where you can realise your ambitions and seek to enjoy the retirement living standards that you have planned and set out for. Whether that’s going on cruises, traveling around the world, restoring an old motorbike, spending more time on the golf course or simply taking the time to be with family and friends, it’s a period to really enjoy your life after hanging up your boots.
Wondering how you can retire at 55? Let us be your retirement planner. We have you covered in our handy guide to early retirement.
For many, their outgoings will be much lower with the mortgage paid off and have everything financially under control.
For example, let’s say you need an annual income of £25,000. You will have your pension, ISA and cash savings and, like many, you will continue working part time, which will bring you £8,000 per annum.
One of the options you have to make up the difference of £17,000 is using ISA savings and by drawing £4,500 out of your pension. That way, you would be making full use of your £12,570 annual income tax allowance, which would otherwise be lost. You would also be safeguarding your tax-free savings for the future when you will need them. If you don’t use your income tax allowance, you are effectively inviting the taxman: 'At some point in the future, tax me on this money’. If you need some help with tax planning and allowances, you can check out our tips in our handy tax planning tips.
Professional advice can help you achieve your pension goals & objectives. Reeves Independent are retirement planning specialists. Book a free pension review with Reeves Independent today to start your journey towards achieving your retirement goals.
State pension retirement stage
When you reach 67, if you meet all qualifying requirements, you can begin to receive the state pension of £11,502 a year – a key milestone in your retirement journey. For many, you will have fulfilled your greatest – and most expensive – ambitions. Generally speaking, you will still be active and in good health, with ambitions still to fulfil.
You may need less money now, but it’s still important to ensure you have the funds you need to live the life you want. Let’s say you now only need £20,000 a year but have decided to give up the part-time job for good. After your state pension, you will still need to find £8,498. To do so you can draw £1,068 from your pension - to use your income tax allowance - with the rest coming from your savings. This is something we can look at if you decide to become a Reeves Client and decide what the best option for you will be.
Later life retirement stage
As you approach the twilight years of your retirement, naturally you will begin to slow down. You may only travel occasionally, go out less often and have given up driving.
Therefore, you could now get by with an income of £12,500. All of this can be met from your state pension and your own pension without paying any tax.
Many people can achieve far more in their retirement years than they might realise. With proper planning, rather than drifting into retirement, you can ensure that your income needs are met as they evolve over time. For the most effective and tax-efficient approach to structuring your retirement, get in touch
with Reeves Independent today. Let us be your retirement planner, book a call today.
