As any distance runner will tell you, the last mile is the most important of all. But it’s also the easiest to blow all your hard work. What you do with your money when the mortgage is paid off and work’s finish line is within sight is crucial to enjoying your golden years. It’s time for your final run up to retirement.
If you are in your 50s, with the mortgage paid off and the children left home, it’s easy to find that you are suddenly much better off. It’s only natural to want to spend a little. A better car, those holidays you have always promised yourself, some home improvements. There is always something to spend your money on.
But remember – you may never have as much disposable wealth again. You need to make it work for you, and use it to make the most of your retirement. You need to start planning – and take some actions now.
Clear your debts
You’ll want to start your retirement as free of debt as possible. Your income is likely to go down when you retire, so any fixed repayments will take up a bigger share of it. Your first priority might be to clear your debts. Paying everything off now makes everything much easier in the future.
- Add up what you owe
- Check the interest rate you’re paying on each debt.
- Pay off the debt that charges the highest interest rate first. This is the most efficient way to clear your debts.
- A tax-free cash lump sum from your pension could clear debts such as mortgage or loans, but with some pension schemes taking a lump-sum payment can be an expensive option compared to the amount of pension income you give up in return.
If you’re not sure which option is best for you, get professional advice.
Work out your retirement income
You need to know what you are likely to have in retirement.
- Get a State Pension statement. This will give you an estimate of how much State Pension you may receive, based on your National Insurance contributions so far. You can do this at the GOV.UK website.
- Find out how much you might get from your defined benefit pension. Every year you’ll be sent a statement. Find the most recent one or ask for a new statement if it’s out of date.
- Trace any lost pensions. If you’ve lost track of any old pensions, the Pension Tracing Service can help. This is a free service run by the Government
- Look at the savings and investments that you could use for your retirement.
Boost your pension savings
You may be enjoying spending right now, but you should probably think about using your new and unfamiliar wealth to build up your pension pot.
Calculations carried out by Saga Investment Services show that if homeowners had diverted the equivalent of their monthly mortgage repayments into a pension until their retirement age, they could have saved an additional £40,000 towards their retirement. Not only can it mean looking forward to a more comfortable retirement, by putting more away now you can keep it out more of out of the hands of the taxman.
You can save up to £40,000 per year in your pension plan, so it probably makes sense to get as close as you can to that figure now.
You need not stop there. Even if you have used your maximum allowance for tax-free pension contributions, you could still save with an ISA. Contributions to an ISA do not enjoy tax relief, but once they are there they grow free of Income, Dividend and Capital Gains Tax and can be withdrawn tax-free.
Decide when to take your pension
You don’t have to wait until state pension age to start drawing a private pension – or certain work pensions. You will usually need to be aged at least 55 although you may be able to start earlier if you’re in very poor health. You can also delay taking your State Pension and receive a higher amount when you do start.
- Check with your pension scheme provider about when you can start taking your pension.
- Think about how you want to take money from your pension. The new pension rules mean there are a lot more options.
- Get professional advice about the options
Get professional advice
Planning for a comfortable retirement is a complicated task, and professional advice can make all the difference. Working out the best way to build up the pension pot you need, the best way to minimise tax and the best time to retire and enjoy the wealth you build up are all a great deal less stressful if you call the Continuum team and ask for help on pension planning.
If you’re within 10 years of your retirement, it is already time to start to start reviewing your pension arrangements annually.