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The Retirement Journey
This text is taken from my guide "The Retirement Journey". Read the full text in the original guide
Are your pensions in good shape?
When you retire, your pensions will probably be one of your largest financial assets so it makes sense to make sure they are in good shape. It is no good waiting until you retire before you start planning because by then you may have missed out on some important opportunities. During your working life you will probably have amassed a number of different pensions in addition to your state pension, and there are three easy ways to see if these are in good shape:
- Make a list of your different pension plans
- Get a pension check up (MOT)
- Consider consolidating or transferring your pensions plan to get a better deal
What about your other pensions
There is no time like the present to check that your personal finances are in good shape and to see if there is anything you should be doing to improve your financial situation.
You will probably be in good shape if your mortgage and any outstanding debt is under control, you have sufficient life assurance or income protection and your savings are invested wisely. Don’t panic if everything is not perfect because you or your adviser can do some simple things to get you into good shape.
- MORTGAGE – Is your mortgage on track to be paid off by the time you retire and do you have a competitive interest rate?
- OTHER DEBT – If you have excessive amounts of personal debts you should take advice about the best way to manage your borrowings
- LIFE ASSURANCE – If you or your partner fell under the preverbal bus will there be enough money to repay the mortgage or keep the family finances going?
- INCOME PROTECTION – If you fell ill and couldn't work, will there be sufficient income to pay the household bills?
- SAVINGS AND INVESTMENTS – Are you saving enough and are your investments in the best place? ISAs – Are you taking advantage of your ISA allowance?
Your retirement options
Since 2015 when the new pension freedoms started you can access your pension pot at any time after the age of 55. You can take your money either as a lump sum or as regular income. Normally 25% of your pension
pot is tax-free and you pay tax on the other 75% when payments are taken.
In practice, most people convert their pension pots into cash or income by:
- taking a cash lump sum (less tax)
- purchasing a lifetime annuity
- Investing in a pension drawdown plan
It is not a black or white choice because you can have any combination of options. If you or your adviser decide an annuity or drawdown is the
best option you do not have to arrange this with your existing pension company and you can shop around for the best deal in the market.
How often should you review your retirement plans?
You should review your retirement plans at regular intervals to make sure you are on track to meet your retirement objectives.
If you have a financial adviser, they will probably review your retirement plans at least once a year. Your adviser will make sure you are taking the right level of income and the investment strategy is on track to achieve the required returns in line with your attitude to risk.
If you don’t have a financial adviser you should review your own plans at least once a year.
Sometimes this annual MOT for your personal finances may not be enough, especially if your personal circumstances change or something important happens in the financial markets. This means you or your adviser should keep a watching brief to make sure your retirement plans are flexible enough to change course if anything changes in the future.
When should you start thinking about equity release?
If your pension savings are not providing you with enough income or you need money for something important such as home improvements, you can release money from your home using an equity release plan.
Equity release is a special type of loan using your home as security. The average age for taking equity release is around 70 so it is something to consider in later retirement if your pension savings are running short. Used properly, equity release is a good way of providing additional income or capital.
When should you start thinking about estate planning, wills and lasting power of attorney?
Estate planning is thinking ahead about how you want your financial affairs dealt with after your death or if you become unable to make your own financial decisions. This includes making sure you a have a valid will or have arranged a lasting power of attorney.
If you have significant assets, you may need advice about reducing inheritance tax.
It is relatively straightforward to arrange a will and lasting power of attorney but the financial cost and emotional anguish of leaving it too late can be huge and result in complex problems.
If you don’t have a valid will, your estate will be distributed according to the rules of intestacy. These rules can be complex. The situation if you are married or in a civil partnership and have children is summarised in the box below.
Rules of intestacy
If you are married or in a civil partnership and have children and die without a valid will, your entire estate will be distributed as follows:
- Your surviving spouse will get the first £250,000 plus goods and all your personal chattels
- In addition, they will get half of your remaining estate
- The other half goes to your children (or held in trust until they are 18.)
It is important not only to have a valid will but to ensure that is regularly reviewed and kept up to date.
Download the free guide or contact William Burrows
You can download a free copy of the Retirememt Journey bu going to the guides section of the website.
If you want to make the most of pension freedoms you should start planning ahead and make sure your financial affairs are in good shape in the years running up to retirement.William Burrows
Call: 07730 435 657
Leeds Innovation Centre
103 Clarendon Road
LEEDS, LS2 9DF