Retirement Planning

In theory, most people will slow down in retirement and their income needs should be reduced. That’s not always the case and if you are looking to do lots of foreign travel, buy new cars or make gifts to family members, logically, you will need a bigger pension pot.

The secret to successful investing is time in the market and pensions are no different. The earlier you start, the more chance you have of building up a substantial pot to draw on in retirement.

It’s generally unwise to rely too much on the State Pension to fund your retirement as the maximum available is £168.60 per week. Other retirement investments or sources of income will help – such as pensions, property, and other investments.

1. Find out how much you’ve saved already, and trace any lost pensions.
2. Check how much State Pension you’re entitled to.
3. Make a list of any other assets you have that you plan to use for retirement.
4. Make a list of all your costs.
5. Choose how you want to use your retirement income and assets. If you’re not sure how you can make the most of these, you can talk to a financial adviser, who will help you put a plan in place.

How much money you’ll need in retirement, and how long it will last will depend on your lifestyle. If you want to enjoy some of life luxuries, you could be in danger of running out of money in your lifetime.

A key aspect of Wren Sterling’s service is cashflow planning. Our tools can help you see how much money you need to retire and then work with you to ensure your finances work as hard as they possibly can to deliver your retirement goals.

Our cashflow planning tools use information about your income, assets, liabilities and expenditure, and show you how long your money is likely to last.

With a Defined Contribution pension you can choose whether to take your pension as one lump sum, flexibly in smaller sums, or use it to purchase an annuity (an investment which provides a regular income in retirement.)

You can withdraw 25% of your pension tax-free once you’re 55 as a one-off lump sum, or if you take your pension in several smaller sums, 25% of each sum will be tax-free.

Taking money out of your pension at 55 may seem like a windfall – but it can mean that you’ll be worse off later on. Many people use this money to pay of their mortgage, or make improvements to their homes. However, there are concerns that people will use the recent Pension Freedoms rules to take money out of their pensions, and spend it on holidays or cars.

Working with a Wren Sterling Financial Adviser can help you answer questions like ‘should I take my pension as a lump sum?’. After getting an understanding of what you want from your retirement, and what you have, we can help you make a plan to get the retirement you want.

How much you need to save will depend on how close you are to retirement, and how much you think you’ll need. The later you start, the more you’ll need to save each month.

There’s no limit on what you can save, but there are tax implications of breaching these allowances:

• Annual allowance – the limit you can contribute to your pension each year. It’s based on your earnings, and is currently £40,000. If you exceed the annual allowance in a year, you won’t receive tax relief on any contributions you paid that exceed the limit and you will be faced with an annual allowance charge.
• Lifetime allowance – this limit is on the amount of pension benefit that can be drawn from pension schemes. This is currently £1,055,000 (tax year 2019/2020). This may seem like a lot, but with the value of Defined Benefit Pensions, it’s important to be aware of this as there are tax penalties for breaching this limit.