Planning ahead

Pension planning

How much will you need to have saved to enjoy a comfortable retirement?

As a general rule of thumb, you need 300 times your required monthly income, so if you want a pension income of £1,000 per month, you have between now and retirement to ensure you have saved £300,000 in your pension pot.

For a more specific number, write down all the things you expect to spend in your retirement years.

That may seem difficult, but if you break it down into a plan, it will become clearer.

Bear in mind that you’ll almost certainly spend more in the first 10 years or so after retirement, on travel and ‘bucket list’ items.

How much should you save each month?

I recommend you keep the first hour of your working day for your future. If you work an eight-hour day, that’s the first 60 minutes of your income going into your pension pot.

That works out as 12.5% of your salary and, ideally, it should be your minimum goal.

The simplest way to get started is to contribute to your workplace pension. Even if you can’t save much, you should still aim to put enough into your workplace pension that you earn any matched contribution your company offers, which is essentially “free money”.

If you don’t have a workplace pension, check out Lexo.co.uk or another online pension provider and get one set up today.

State pensions and National Insurance

Your state pension is based on your National Insurance contributions during your working life – or National Insurance credits received, if you have been a parent, a carer or low earner.

If you’ve had any career gaps or earned below the qualifying threshold, you may not receive your full allowance, which will reduce your income in later life.

If so, you may benefit from paying voluntary National Insurance contributions to cover any gaps in your National Insurance record and maximise your state pension. Get a state pension forecast, either online via gov.uk/check-state-pension or by completing a BR19 form, and check if topping up would benefit you.

For a more comprehensive financial overview, check out my free cashflow app at WarrenShute.com to find out if you have enough to retire.

Wills and lasting powers of attorney

A will is essential for everyone. If you don’t have one, you’re leaving an admin burden on those you leave behind.

And if you have dependent children and don’t have a will, if both parents pass away, social services will take your children into care until a court decides on the most suitable guardian. Don’t let a court decide on your children’s future – make a will today.

To do this, simply visit a solicitor or a qualified will writer. My free resources at WarrenShute.com will help. Just as important as having a will is having a lasting power of attorney (LPA). They are absolutely not “just for old people” – anyone at any age can have an accident.

If you’re incapacitated for any reason and don’t have an LPA, then the Court of Protection steps in. Why would you want the court to decide how you should be treated, rather than someone you trust?

There are two types of LPA and you can arrange them yourself online via the Office of the Public Guardian website.

Inheritance tax (IHT)

Everyone has a £325,000 tax-free allowance to leave behind. If we leave our estate to our spouse, they add their own allowance and can leave £650,000 without inheritance tax.

The main residence nil-rate band (aka the Principal Private Residence Allowance) was brought in as an additional allowance.

If you have a main residence (your home) that passes to your direct descendants – basically, your spouse, children or grandchildren – no inheritance tax is due on the first £175,000 of value.

This is also inheritable by your spouse/civil partner. Those figures were set because when you add up the £325,000 estate allowance and the £175,000 from your home, as a couple that means you can leave up to £1million without incurring inheritance tax.

You can also give lifetime gifts while you’re alive, which fall outside inheritance tax if you live at least seven years further.

If you plan to do this, however, I would always advise you to seek professional advice first.

Ideally, you should aim to save at least 12.5% of your salary into a pension