If you are not asking yourself this question and you are between the ages of 18 and 55 you really should be, and the sooner you ask the question the sooner you can start saving towards it.
It’s never too early to think about and plan your retirement. The earlier you start saving towards it the sooner you may be able to retire and the bigger pension pot you will have.
Here are some things you might like to consider.
Your State Pension.
State Pension age is gradually increasing for men and women, and will reach 67 by 2028. More importantly State Pension age is to be kept under review, which means that it could change again in the future, depending on different factors, such as changes in life expectancy.
The current State Pension age is set at 66 for men and women.
Do you know what your State Pension will be?
To claim a full state pension you usually need 30 qualifying years of national insurance contributions. At the moment the state pension for the full qualifying years is £141.85 a week or £7376.20 a year. This normally increases by a nominal amount year on year unless the government put a freeze on the increase.
Here are some questions to ask yourself when thinking about retiring.
When do you want to retire?
There is no minimum age for you being able to choose to retire. In most cases it all depends upon when you can afford to retire.
Under ‘pension freedom’ rules introduced by the government in 2015, you have more flexibility about how you access ‘defined contribution’ pensions when you reach 55 (increasing to 57 in 2028). This age is when you can access your personal pensions without getting an unauthorised payment tax charge.
Having a particular age in mind is one of the first steps in retirement planning. That’s because if you’re 40 and you know you’d like to retire at 60, you can figure out how much you’ll need to save into your pension each month to be able to live the life you want to lead in retirement.
If your are self-employed It’s important for you to think about when you’d like to retire as soon as possible so you can start the planning process. Self-employed people, often find it difficult to save towards a pension. Recent figures suggest that only 30% of the self-employed are managing to save into their pension pots.
If you are a company owner you may be able to use your business to help fund your retirement but you will need to plan this carefully and will need expert help.
What monthly income will I need to fund the retirement lifestyle I would like?
This is an important consideration as it will form the basis for all of your other considerations. With the cost of living increasing the amount of money you will need for retirement will also be increasing.
You will also need to consider that tax will most likely be deducted from any pension payments you receive further reducing your pension pot and your monthly receipts. Taking a tax free 25% lump sum at the start may be an option.
Do you want a guaranteed or flexible retirement income?
Using your pension pot to buy an annuity contract can provide a guaranteed income for the rest of your life. Flexi-access drawdown can provide an income that can be adjusted over time, however this can rise and fall and isn’t guaranteed.
Do you want to keep your pension pot invested after retirement?
If you want to give your pension pot the potential to maintain or grow its value, moving it to flexi-access drawdown means it can be invested in a wide choice of investment funds.
Do you want to pass on your pension on your death?
Any annuity will die with you unless you buy a joint annuity or one with a survivor’s income or guaranteed period built in. Income drawdown can generally provide more flexibility to pass on unused pension money to family and loved ones.
What about mixing and matching my pension pots?
You can blend different retirement options such as drawdown, annuities and taking tax-free cash. You can also change the mix as your needs change throughout retirement.
As mentioned above, it’s never too early to think about your retirement and particularly your pension. The sad fact is that for many people it is a consideration that is left too late.
- Almost 70% of the self-employed are not paying into a personal pension pot, which means they are not planning for their retirement or have no exit from work strategy.
- Once upon a time the state pension would have been enough the see you through retirement this is no longer the case. The sooner you start saving into a personal pension, or a company pension scheme the better.
If you would like to have a chat about pension schemes then please get in touch.
When it comes to your company’s accounts and tax returns. GW & Co Ltd, offers Fresh Thinking, Friendly Advice for Your Business Success. If you’d like to talk about the issues raised in this article or any other accounting challenge facing your business, please do not hesitate to get in touch.
Tel: 01326 378288
Email: info@gw-accountants.co.uk
