Funding a comfortable retirement is all about understanding your options and making the right financial choices. Pensions and investments are complicated and you may need to take professional advice about the best way forward.
Don’t make rash decisions and give yourself some time to make any changes – preferably start planning at least two years before your last day at work. Here are some of the key points to think about:
Working out your retirement income
This is your starting point for a financial plan for retirement. Gather the paperwork – a state pension statement, statements and projections from any workplace or private pensions and fund values for savings and investments. Add them up to give a predicted retirement income amount.
Reduce your risk
If you have cash tied up in funds, stocks or shares, consider gradually moving the money into less risky investments, such as gilts. The investment return will be less, but the danger of losing money is reduced.
Boost savings and pay down debt
If you have spare cash, become a reluctant spender and save the money. Don’t overlook debt. Divert your spare cash to reducing what you owe on credit cards and loans as you want to be rid of these liabilities on retirement.
Pay the debts with the highest interest charges first. That way you save the most money. Take advice about drawing money from a final salary pension to pay debts as withdrawing a lump-sum can impact the amount of pension you receive and may not work out as value for money.
Retirement will change your spending patterns. You won’t spend on work related costs any more, such as travel, clothes and lunches out, but you will probably spend more on hobbies, holidays and days out.
Work to a plan
Once you have all your paperwork and a financial plan in place, set a date for your retirement. You do not have to give up work, but you do have to be over 55 if you want to take any pension cash.
If you decide to keep working, this target date becomes a time to review your financial plan while setting a later date.
If you have a pension pot worth more than £30,000, you must take professional advice before taking the 25% tax-free lump sum or any other benefits.