Retirement plans on the right track?
VICKY SHAW has five key questions to consider when it comes to your pension
MANY people approaching retirement will be anxious about the longer-term impact of Covid-19 on their savings. Investment pots have taken a hit over the past few months or so, and seeing the impact of that will understandably be unsettling for savers.
But also bear in mind that once the wheels of the global economy eventually start to move faster again, there should also be some positive impacts for the stock market.
So, try not to rush any decisions or panic about what’s to come.
Approaching retirement age and worried about your retirement savings?
Laura Laidlaw, head of customer communications at Standard Life, suggests five key questions to ask yourself to check if you are still on track...
1 HOW MUCH MONEY WILL I NEED?
IT’S important to regularly check in on your pension pot to monitor its value and growth, as that will help with your planning.
To find out what annual retirement income you’re likely to need, start by estimating your retirement expenses.
Future expenses are hard to predict but to get a ballpark figure, take your current standard of living and then subtract any expenses you expect to go away and add in any new ones you think you may have.
The Pensions and Lifetime Savings Association (PLSA) has developed Retirement Living Standards (retirementliving standards.org.uk), which shows the different kinds of living standards people could have in retirement and the savings they require.
This is worth looking at to help form some idea of what you might need.
2 WHERE WILL MY RETIREMENT INCOME COME FROM?
YOU’RE likely to have a ‘main’ pension plan, for example a workplace one through your employer.
You can access these pension savings from age 55 currently. In addition, most people are entitled to the state pension.
The age at which people can newly access the state pension has been increasing.
The gov.uk website has a state pension age calculator which gives you the expected date you’ll be eligible and how much you may receive. The amount depends on your work history and national insurance credits.
You may also have other income, perhaps from previous pensions, Isa investments or even an inheritance. If you think you might have a few old pensions from previous employers, the UK Government’s Pension Tracing Service (gov.uk/findpension-contact-details) can help you track them down.
It’s important to consider all your savings pots together and to have a plan which means you take an income in the most tax-efficient way.
If you are already, or are just about to start taking from your pension, bear in mind that taking money from cash savings or other reserves of income may help your pension pot to recover from recent events more quickly.
3 HOW MUCH DO I NEED TO SAVE?
ONCE you’ve decided the level of living standard you realistically want to aim for, consider whether your savings will support this.
A retirement savings portfolio – or pot of money – may need to last for at least 30 years.
People often spend more money earlier on in retirement, perhaps doing home improvements or starting new hobbies.
Many pensions nowadays allow you to leave your savings invested, so they have the potential to carry on growing.
Withdrawals from your pension pot can be varied as your income needs change.
The key to ensuring you have enough to last you throughout your retirement is to keep your pension under regular review.
Investing in financial advice can help you by ensuring you have an appropriate investment strategy and withdrawals remain sustainable.
4 WHAT IF I DON’T THINK I’LL HAVE ENOUGH MONEY?
REMEMBER, the longer you can put off your retirement and avoid the need to tap into your pension savings, the higher the income you may be able to take in the future.
Don’t rush decisions today, or panic-sell investments if you don’t need to – there are consequences for locking in losses, which may have an impact for decades to come.
5 IS IT WORTH GETTING ADVICE?
A FINANCIAL adviser can provide you with a tailored plan to fit your individual needs.
A lot of guidance and support should also be available from your pension provider, including the impact of any coronavirus-related market movements on your hard-earned retirement savings.
Free help is also available from the Money Advice Service (moneyadviceservice.org.uk) and the Pensions Advisory Service (pensionsadvisoryservice.org.uk).