5 September 2024
Margo Lestz
Head of Communications
Retirement is a phase of life that many of us look forward to, envisioning days filled with leisure, travel, and the pursuit of our long-held dreams. However, to make these dreams a reality, careful financial planning is a must. Regardless of your current age or career stage, it's never too early – or too late – to start planning for retirement. This guide will walk you through the key elements of retirement planning, helping you build a secure and comfortable future.
How Much Will You Need?
To make a plan for retirement, you’ll first need to have a clear idea of how much money you'll need to live on when retirement day comes. Do you want a minimum, moderate or comfortable standard of living?
“Retirement Living Standards” reports that for a “comfortable” retirement in 2024/25 a single person would require £43,100 and a couple would need £59,000.
Of course, if you will be retiring after 2025 you will have to adjust these numbers. You’ll need to consider factors such as:
Your expected retirement lifestyle
Potential healthcare costs
Inflation – be sure to account for inflation which can erode your purchasing power
Life expectancy
How much you have already saved for retirement
Enter Retirement Mortgage and Debt Free
Entering retirement debt-free can significantly reduce your financial stress and required income. Prioritize paying off high-interest debt, and consider paying off your mortgage before retirement if possible.
Harness the Power of Compound Interest
Now that you know how much you’ll need, it’s time to start putting the power of compound interest to work for you. One of the most powerful tools in retirement planning is time. The earlier you start saving and investing, the more you can benefit from compound interest. This is the process whereby you earn interest not just on your initial investment, but also on the accumulated interest over time.
For example, if you start investing £5,000 per year at age 25 with an average annual return of 7%, you could have over £1 million by age 65. If you start at 35 (only 10 years later), you will need to invest nearly twice as much each year to reach the same goal. So, no matter what stage of life you are at, the time to invest is NOW!
Take Advantage of Pension Schemes
A good first step toward saving for retirement is to take full advantage of the available pension schemes:
Workplace Pensions - Both you and your employer contribute to this pension. Try to contribute at least enough to get the full employer match—this is essentially free money.
Personal Pension - If you're self-employed or want to save more, consider a personal pension. These are similar to workplace pensions but are set up by you with a pension provider.
Self-Invested Personal Pension (SIPP) - A SIPP offers more investment flexibility than traditional personal pensions, allowing you to choose and manage your investments.
Individual Savings Accounts (ISAs) - ISAs are tax-efficient savings and investment accounts.
Diversify Your Investments
In addition to your pensions, you might want to look at other investments. But remember the saying: Don't put all your eggs in one basket. Diversification helps manage risk and can improve your returns over time. Consider a mix of:
Stocks: For long-term growth
Bonds: For stability and income
Property: Through REITs or direct investment
Cash and cash equivalents: For liquidity and safety
As you near retirement, you may want to shift to a more conservative allocation to protect your wealth.
Plan for Healthcare Costs
As we age, healthcare becomes even more important. While the NHS provides comprehensive healthcare coverage, you may want to consider private health insurance or setting aside funds for potential out-of-pocket expenses, especially in retirement.
Create Multiple Income Streams
Diversifying your income sources in retirement can provide more security and flexibility. Consider:
State Pension
Workplace and personal pensions
Rental income from property investments
Part-time work or consulting
Annuities for guaranteed income
Have a business that pays you a passive income
Consider Tax-Efficient Withdrawal Strategies
How you withdraw your retirement savings can have significant tax implications. Consider strategies like:
Using your tax-free pension commencement lump sum
Managing withdrawals to stay within lower tax brackets
Balancing withdrawals from pensions and ISAs to manage your tax liability
Be Prepared for Market Volatility
Market downturns can be particularly damaging if they occur early in your retirement when you're beginning to withdraw funds. Consider keeping 1-2 years of expenses in cash or short-term bonds to avoid having to sell investments at a loss during market dips.
Protect Your Assets
Ensure you have adequate insurance coverage, including life insurance if you have dependents, and consider income protection and critical illness cover.
Estate Planning
While not strictly about retirement, estate planning is an important part of overall financial planning. Ensure you have a will, consider setting up trusts if appropriate, and keep your beneficiary designations up to date on all accounts and insurance policies.
Review and Adjust Regularly
Your retirement plan isn't a "set it and forget it" document. Review your plan annually and make adjustments based on changes in your life circumstances, the economy, and tax laws.
Seek Professional Advice
While it's possible to plan for retirement on your own, the stakes are high, and the rules can be complex. Consider working with a financial planner who can help you create a comprehensive retirement plan tailored to your specific needs and goals. Look for financial professionals who are authorized and regulated by the Financial Conduct Authority (FCA).
Retirement planning can be complicated, but by starting early, saving consistently, investing wisely, and regularly reviewing and adjusting your plan, you can work towards a financially secure retirement.
Remember, the goal isn't just to save a certain amount of money, but to ensure you can maintain the lifestyle you desire throughout your retirement years. This may involve trade-offs and tough decisions along the way, but the peace of mind that comes from knowing you're prepared for the future is invaluable.
Whether retirement is decades away or just around the corner, take action now to secure your financial future. With careful planning and disciplined execution, you can look forward to a retirement filled with comfort, security, and the freedom to enjoy life on your terms.
Your Genistar representative can help you get started on the right track for planning your retirement with our complimentary Financial Plan. Contact your Genistar rep or our Support Centre.
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The information provided on this website is for educational or informational purposes only. Please refer to our legal disclaimer for further information.
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