What should I do when preparing for retirement?

A trip of lifetime, more time with loved ones, securing financial freedom - these are just a few things people think of as you get closer to retirement. But what do you need to do to ensure you are fully prepared for this next stage of your life? The basics are important. Firstly you need to start by asking yourself some simple questions, such as: 

  • How much do I spend now? And how much do I anticipate spending in retirement? 
  • What assets do I or will I have to fund my retirement? What capital and income could this provide and is this enough? 
  • Will I be entitled to a full state pension (or any other benefits) and if not, how can I make up for any shortfall? 
  • What happens if I need care later in life and how would this be funded? 
  • Is passing on wealth to loved ones tax efficiently important to me?

By answering some of these questions you’ve got the foundations to start preparing for your retirement.

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Why is preparing for retirement important?

Preparing for retirement is crucial to ensure you meet your retirement goals, which for many is simply living a comfortable lifestyle after finishing your working life. The following reasons highlight why preparing well for retirement is essential:

  • Maintaining your lifestyle – careful retirement planning allows you to live a lifestyle you wish to once in retirement, for example travelling to new destinations around the world.
  • Limited government support – whilst the State Pension is a great source of income once State Pension age is reached (currently 66, increasing to 67 by 2028 and 68 by 2046), individuals are increasingly reliant on personal assets such as investments and pensions to fund retirement. 
  • Increasing life expectancy and healthcare costs – with people living longer, the need to manage their retirement funds effectively to ensure they have enough to last them throughout the remainder of their lifetimes, as well as covering any long-term care costs in later life, has become even more important.
  • Peace of mind – when you are financially (and emotionally) prepared for retirement, it can reduce the stresses associated with ensuring you have a comfortable retirement. The fear of running out of money in retirement can be rationalised with the right planning.

How to Prepare for Retirement

Careful planning and preparation are needed to meet your retirement objectives. Here are some steps you can take to prepare for retirement:

  • Determine how much income you might need in retirement – your pattern of spending will likely see some changes when you retire. To prepare yourself for these changes, it is a good idea to make a budget for your anticipated expenditure once in retirement to help put together a retirement plan. Your estimated expenditure throughout retirement can help to identify the all-important questions of ‘how much do I need to retire?’ and ‘when can I retire based on my spending pattern?’. There may be many out goings that you will no longer have in retirement such as mortgage costs or commuting costs. 
  • Start planning as early as possible – the earlier you start saving for retirement, the more you will be able to benefit from compound returns (i.e. growth/interest on accumulated investment returns/interest as well as on the initial savings). Compound growth can have a significant impact on long-term returns, potentially reducing the need to save ‘harder’ in the later years of retirement.  
  • Maximise your retirement savings – if you have a workplace pension, it is worth considering contributing the maximum amount possible up to which your employer will make additional contributions. Pensions can also offer attractive tax relief on contributions, particularly for higher and additional rate taxpayers. In addition to pensions, an Individual Savings Account (ISA) can be a useful tool for saving towards retirement in a tax-efficient manner. 
  • Pay off debt – debt can hamper your ability to save effectively towards retirement, hence paying off debt is an important step in preparing for retirement. A key goal for many is clearing an outstanding mortgage ahead of retirement, however debt can also come in the form of credit card debt or car loans for example. By paying off debt before you retire, you can reduce your monthly expenses and have more money to spend on things you enjoy. As a general rule of thumb, it may be worth targeting the debt that costs the most to service first (in other words, that with the highest interest rate payable).
  • Build an emergency fund - having an emergency fund is important at any age, but it is especially important when preparing for retirement, after which point you will typically not be able to save out of any excess employment income. An emergency fund can help you cover unexpected expenses, such as a car or the boiler needing replacing, without having to dip into your retirement savings.

Preparing for retirement checklist:

  • Assess your current assets, including any savings, investments, and pension plans which could be used to meet your retirement objectives. For any defined contribution pension plans (those based on the contributions you and/or your employer make) you should receive a statement from the provider, at least annually, showing how much the plan is worth. Or you may be able to log into your account online to view your current balance and projections. It may also be worth checking with the provider what the options are for drawing benefits once in retirement. 
  • Check your State Pension entitlement if you haven’t done so already. This will give you an estimate on how much State Pension you might receive based on your National Insurance contributions to date, and if you can make additional voluntary contributions to increase your State Pension entitlement. You can check your forecast here:
  • Find out how much you may receive from any Defined Benefit pensions (otherwise known as final salary pensions), if you have any pensions of this kind. Your pension administrators should be able to provide a retirement quote upon request.
  • If you have lost track of any pensions, the government has a free service in order to track them down. More information can be found out here:
  • Consider working with a financial adviser to help create a retirement plan, maximising your retirement savings and managing your investments. Having the correct structures in place for both the ‘accumulation’ (building up your retirement assets) and ‘decumulation’ (drawing down on your assets in retirement) phases of your life, tailored to your unique circumstances, can make all the difference.

How TPO can help

Retirement can be a daunting word for many. However with careful planning you can be better prepared so you can look forward to this new phase of your life. If you would like to find out more about how we can help you best plan for retirement using technology to map out what your financial future may look like, why not get in touch with The Private Office for a free initial consultation with one of our expert advisers.

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Please Note: The value of investments can fall as well as rise.  You may not get back what you invest. The Financial Conduct Authority (FCA) do not regulate estate or cash flow planning, or tax advice.