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Kirk Rice Blog

Retirement Planning – When Can I Retire?Written on August 30, 2017 by Kirk Rice LLP

Retirement Planning – When Can I Retire?
Financial Services Questions

The Question:

In my 20s, I never gave a thought about retirement, then my 30s came along with children, in my 40s my career was flying until redundancy occurred, in my 50s I paid off my mortgage and now I am spending more time making sure my parents are comfortable in retirement. What advice could you give me about retirement planning?

Kirk Rice LLP answers:

This reminded me of some of the world’s greatest athletes. When you listen to the likes of Michael Johnson, Paula Radcliffe, Jo Pavey, Usain Bolt, Katherine Grainger and Chris Froome one common thread is that they never think about how hard it will be to achieve Gold, a world record or distance, but what are the things they need to do each day to incrementally improve their preparation for the event. They set regular reviews of progress and focus on the aspects that get them to the next stage, and gradually their overall performance improves, they overcome obstacles, and they find themselves ready for the challenge of the Olympics or World Championships. What’s common is that they regularly review and they visualise what standing on the podium will mean to them and their family.

So where do you start with financial planning for your future?  As soon as you start working.  It is so important that legislation now automatically enrols anyone aged 22 and earning at least £10,000 into a workplace savings plan for their retirement. There are three main pensions: Workplace – regular savings from you, your employer and the Government; Personal – saving by you, possibly added to by family and others as well as the Government; State – a fixed income from a set age. It’s widely recognised and understood that the safety net provided by the Government benefits is inadequate for most people and that additional money will be required in retirement to provide for your lifestyle. Take a look at people you know in retirement and visualise how yours may differ. Set some personal goals and regularly update them throughout your life.

If you are in your 20s

You have a great opportunity to prepare for retirement because any money you save will be invested for the longest period, and therefore will make up the largest part of your pension fund. Student debt is often a concern, but putting money into a pension will generally be better than paying off student debt. If you are automatically enrolled at work, or are self-employed you will be accruing credit years (of which you need 35) to entitle you to a full State Pension from age 67. Consider the Lifetime ISA (LISA) which will build up savings you can use for a house purchase or leave until retirement with the government chipping in a further 25% boost, subject to a maximum of £1,000 a year. Until you are aged 57 or older, you will not be able to use the money in your pension, whereas you can access your LISA earlier for house purchase. Consultation about these access ages is continuing and you should expect more changes which may affect you.

When you are in your 30s

You are most likely to be feeling the squeeze on your finances at this stage, but have opportunities for career progression. One approach is to increase pension contributions in proportion to pay increases and always save a portion of any bonuses.

When you are in your 40s

You may be at or near your earnings peak so take stock of what you have, and possibly assess the size of your potential income in retirement.  Check whether you have missed any credit years for State Pension and consider how to make up for these, including buying them.

In your 50s

For some, thoughts of retirement become clearer now.  Find out when and how much your State Pension will be. Consider the retirement options for each of your Pensions and whether you need to transfer to access the money in the way that benefits you best. The first 25% of your pension fund is accessed tax-free, although the rest will be taxed as income when you receive it. Some Workplace pensions provide a set of Scheme benefits, some of which are guaranteed, so transferring these will require careful consideration. The value of these benefits may mean your scheme will require you to take independent financial advice before allowing a transfer.

In your 60s

Most pension schemes will provide you with illustrations of the value of your benefits, which will be the most accurate you’ll ever receive. Gathering these will allow you to consider what you want to do with the money, including any options to buy an annuity to provide you with a steady income for the rest of your life. How will you deal with any debts and will you need to down size? Should you have less than 35 years’ credit consider whether buying those years is cost effective, although generally this must be done within 6 years of the missed year.

Many people who are now receiving one or more pensions are also working later in life as they enjoy good health for longer than previous generations.

The earlier you save, the longer the money is invested and the better chance you stand of accumulating a comfortable pension pot for your retirement. If you were to target a pension fund of £250,000 these are the monthly contributions you might need to make if investment returns averaged 7% per annum.

Time to retire   Regular monthly savings Total Savings needed 
 40 years  £      95  £   45,600
 30 years  £    204  £   73,440
 20 years  £    477  £ 114,480
 10 years  £ 1,436  £ 172,320

Of course over these long periods, inflation will affect the buying power of your money at retirement so you should regularly review what you save as discussed earlier.

Read more on this topic in our key guide:

 Investing for Income when you Retire

Any reader interested in discussing this topic further can telephone Michael Powell on 01344 875000 or email info@kirkrice.co.uk

If you would like to receive Money Matters electronically, simply email info@kirkrice.co.uk stating Money Matters Article in the subject heading and we will add you to our distribution list.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.

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