How to avoid a cash shortfall in retirement
Managing money might require a re-think in retirement, as savings may need to stretch over decades.
To get started, here are some tips from Colin Dyer, client director at abrdn financial planning (abrdn.com)...
■ CREATE A PLAN
“While treating yourself in your early days of retirement is well deserved, it’s important you think ahead and create a plan to make sure money lasts for the duration of your retirement,” says Colin.
Many online calculators can help estimate retirement income, “However, for most people there isn’t a flat level of income needed throughout retirement, so factor the ups and downs into planning,” Colin adds.
“People often spend more in the early years when they are fit and healthy, and their income needs may flatten out over time. But costs often rise again in later life.”
■ MONITOR YOUR MONEY
Household finances have been hit by the coronavirus pandemic, and Colin says: “You need to work out how you are going to navigate these setbacks. On the flip side, it might be some challenges mean you are spending less, and therefore you might be able to afford things in the future you hadn’t considered an option.”
■ GROW YOUR SAVINGS
“Money in your pension is going to have a better chance of growing if it remains invested – rather than sitting in your current account,” explains Colin. “Extra savings might be worth investing in something like a stocks and shares ISA.”
■ BE TAX EFFICIENT
A quarter of pension pots tend to be tax-free, but “every pension or savings pot may be taxed differently. You want to be smart and be aware of how much you withdraw each year, and how the amount impacts your tax bracket”.
■ DON’T BE AFRAID TO ASK FOR HELP
If you’re not sure about the best course of action, a financial adviser might help and free guidance is available from the UK Government-backed service Pension Wise.
Go to moneyhelper.org.uk