Q: What is retirement planning?
Retirement Planning can sound daunting, but it is quite simply the process of planning for your retirement – whatever that may look like. It’s important to understand your future expenses and how to fund them. This includes essential (e.g. housing costs, utilities, food & household essentials, transport costs, insurance, etc.) and leisure spending (holidays, hobbies, entertainment, socialising, etc.). Once you have a good idea of what your expenditure will look like, you need to consider how you are going to achieve this – What will your income sources be? What are the tax implications? Is this sustainable over the long term? How will you cover unforeseen costs? These can be complex questions to answer, but financial advice can help. We work with you to create a personalised plan and help keep it on track. Get in touch to find out how we can help with your retirement.
Q. At what age should I start planning for retirement?
The quick answer is ‘as soon as possible’! Starting early allows for you to take advantage of any tax relief available to you for as long as possible and benefit from a greater potential for growth through the power of compounding investment returns. Whether you’re in your 20s or 30s, it’s never too early to begin. On the other hand, if you are in your 40s or 50s, it’s never too late to start planning. Taking action now can make a significant impact on the later stages of your life. Consulting an expert can help to simplify the process and ensure you’re making well-informed financial decisions.
Q: How much money will I need to retire comfortably?
The amount that you will need for a comfortable retirement depends on you, your future expenses and desired lifestyle. There is no one-size-fits-all answer. Estimating your annual expenses is a worthwhile exercise to begin with. From there, we can help you by modelling your future cash-flow, aiming for your retirement to be comfortable and sustainable. Speak to us today to find out how we can help you.
Q: What are the key steps in creating a retirement plan?
- 1. Set your goals – Decide when you would like to retire and what you would like your lifestyle to look like.
- 2. Estimate your expenses – Understand how much money you will need for essentials (e.g. housing, utilities, food, etc.) and leisure spending (e.g. holidays, hobbies, entertainment, socialising, etc.).
- 3. Review your current position – Look at your current savings, pensions and investments to explore if there are any shortfalls in your arrangements.
- 4. Develop a plan – Create a plan to address any shortfalls in your arrangements so you can aim to achieve the goals you have set for yourself.
- 5. Review regularly – Creating a plan is brilliant, but you need to make sure this plan stays on track! The more regularly you review your progress, the sooner you can make any alterations that may be needed.
- 6. Seek financial advice – Seeking advice can help you to achieve the goals you have set yourself; get in touch for help with your retirement plan.
Q: What is a retirement savings goal, and how do I set one?
A retirement savings goal is the amount of savings you hope to have by the time you retire. This amount should allow you to live comfortably without relying on an income from employment. To set a goal, it’s important to understand your expenses in retirement and how long you may be retired. Next, assess your income sources, such as pensions, investments, and savings and identify any shortfalls. Once you have identified the gaps, formulate a plan to address this. This should be a realistic and manageable amount which will help you reach the goal you are aiming for by the time you come to retire. Get in touch today for help with your retirement savings.
Q: What is the impact of inflation on retirement savings?
Inflation erodes the purchasing power of your money over time, meaning that the same amount of money will buy less in the future than it can now. This can have a significant impact on your retirement savings as you’ll need more money in the future to maintain the standard of living you enjoy today. If your retirement savings don’t grow at a rate that outpaces inflation, you may struggle to meet your expenses in the future. It’s crucial to have a diverse portfolio of investments to have the greatest potential of beating inflation and securing your financial future. Need help? That’s where we come in – get in touch today for help with beating inflation.
Q: What are common mistakes to avoid in retirement planning?
- 1. Relying solely on the State Pension – the State Pension is a helpful addition to your retirement income but is unlikely to provide enough for you to live comfortably. Relying solely on this can leave you financially stretched.
- 2. Underestimating your expenses – It’s mostly correct to assume that you will spend less in retirement, but many people find themselves stretched from underestimating how much money they will actually need.
- 3. Leaving it too late – Delaying retirement planning can have a significant impact on the amount you are able to save for your retirement. Taking proactive steps as soon as possible can dramatically improve your lifestyle at retirement.
- 4. Withdrawing too much too soon – Drawing from your retirement funds too aggressively can have a serious impact on the longevity of your arrangements. It’s important to maintain a long-term view of your funds, aiming for your income to remain sustainable.
- 5. Ignoring tax implications – Different retirement solutions are taxed in different ways. It’s important to be aware of what taxes you need to pay and to account for that in your plan.
- 6. Overestimating investment returns – Being overly optimistic about the returns you expect from your investments can be dangerous. High expectations can lead to disappointment and shortfalls in your income.
- 7. Not seeking professional advice – Navigating retirement planning on your own can be overwhelming, and it’s easy to make mistakes. Seeking advice from an expert can, at the very least, give you the peace of mind that you are making sound, well-informed decisions about your financial future.
Q: How will my retirement income be taxed?
- 1. State Pension – The State Pension is taxable, but many people do not actually pay tax on it because it falls below their income tax threshold. If your income exceeds the personal allowance, you will pay income tax at the applicable rate (20%, 40% or 45%).
- 2. Annuities – An annuity is taxed similarly to that of the State Pension – it is assessable for income tax at the applicable rate.
- 3. Defined Benefit Pensions – Defined benefit pensions offer a guaranteed income throughout your retirement. They are also assessed for income tax at the applicable rate.
- 4. Defined Contribution Pensions – There are multiple ways to take income from a defined contribution pension, the level of tax you will be due depends on the method you use for each withdrawal; some may be fully taxable, partially taxable or even tax-free. As a rule of thumb, 25% of your fund is usually tax-free, whilst the remainder is subject to income tax at the applicable rate. This may not be the case for some people, so it is always best to seek advice from a professional.
- 5. Investment income – If you hold investments separate to a pension (such as bonds, stocks & shares, Unit Trusts or property), these will all be taxed differently so it’s always best to seek advice from a professional to be sure of which taxes you will pay. ISAs, however, are completely free from any income or capital gains tax.
If you are planning to begin taking income from your pension or other investments, it is always best to seek professional advice. Unexpected taxes can have a detrimental impact on your retirement.
Q: How can I reduce taxes on my retirement income?
To reduce taxes on your retirement income, effective planning is essential. Diversifying your portfolio with different investment wrappers can allow you to utilise all of the tax-free allowances available to you. Utilising ISAs can also help with tax liabilities, as they are very tax efficient. Strategically taking withdrawals from your pension can also help with reducing the level of tax you pay. It is imperative you seek professional financial advice when considering tax-planning, as a misstep in this area could cause a lot of problems.
Q: How should my investment strategy change as I approach retirement?
As you approach retirement, your investment strategy should evolve to reduce risk and volatility to protect your savings as you begin to take an income. Moving away from asset classes that have higher levels of risk and volatility, such as equities, to lower risk and lower volatility classes such as bonds or cash can help your funds remain steady in their value. It’s important that your funds remain liquid and accessible, so that they can be withdrawn when needed. Managing investment portfolios is a specialist area of planning, and as such professional advice from a financial planner should be sought.
Q: Should I work with a financial advisor for retirement investing?
In short, absolutely. A financial adviser can provide much-needed expertise which can support you in making well informed financial decisions – which is imperative for something as important as your retirement! A financial adviser can support you with your investment strategy, cash-flow modelling and tax planning. We work with you to create a bespoke plan which is tailored to your needs, circumstances and goals, focusing on where you want to be and how you can get there.
Q: What are the different types of pensions available in the UK?
In the UK, there are several types of pensions in existence; some are still available to consumers whilst some are legacy schemes:
- State Pension – the State Pension is provided by the government and provides you with a basic level of income determined by your history of National Insurance contributions throughout your working life. It can vary from person to person, but you can request a State Pension forecast (BR19) online which will tell you exactly what you are likely to get.
- Defined Contribution – These pensions act like a pot of money, of which you can contribute a set amount to each year. Defined Contribution pensions are the most common form of pension available today.
- Defined Benefit – These are often referred to as Final Salary of CARE (Career Average Revalued Earnings) schemes. They provide you with a guaranteed income based on your final salary at retirement or your average salary throughout your membership with the scheme. These schemes are most typically offered by employers in the public sector.
Whilst the above mentioned are the three most common types, there are many others, such as SIPPs (Self-Invested Personal Pensions), Stakeholder Pensions, SSAS (Small Self-Administered Scheme), Executive Pension plans and many more. It’s always worth seeking professional advice when reviewing your existing pensions and when considering the best option for you moving forward.
Q: How much should I contribute to my pension?
The amount you should contribute to your pension depends on how old you are, your income and your retirement goals. There’s no hard rule as to what level you should set for your contributions, but it’s important to consider factors such as the tax relief available to you, any employer matching you can take advantage of and how much you can afford. Contributing as much as you can early in life allows you to potentially benefit from compounding investment returns. It’s always best to seek professional advice in this area, so do get in touch if you would like to discuss this or anything else with an expert financial adviser.
Q: What is pension tax relief?
Income tax relief is available on most pension contributions – it was put in place by the government as an incentive to encourage saving for retirement. For example: - If you are a basic rate taxpayer, you get tax relief at 20% on most of your contributions, i.e. if you contribute £80, the government adds £20, making your total contribution £100 - If you are a higher or additional rate taxpayer, you can get tax relief at 40% or 45% respectively, although any tax relief over and above 20% will need to be claimed via a self-assessment tax return.
There are limits to the tax relief you can get. Your total pension contributions for any one tax year should total the lower of your UK relevant earnings or the annual allowance (£60,000 for 24/25 tax year). There are other rules which affect this limit for you, such as a high level of income, low level of income and carry forward allowance. Get in touch for information about how you can maximise your pension contributions.
Q: What happens to my pension if I pass away?
There are lots of different types of pensions available, and all have varying tax rules and implications upon death. On top of this, a proposal to change most Pensions in relation to Inheritance Tax was announced in the 2024 autumn budget which is due to take effect from 6 April 2027. If you’re concerned about what will happen to your pension upon death, get in touch for a detailed analysis of your pension plans and how they will be taxed.
Q: How can you help with my retirement planning?
At SeventySeven Wealth Management, we provide expert advice and guidance to help you navigate the world of retirement planning. We work with you to create a bespoke retirement plan to help you achieve your goals through careful investment planning and effective use of tax efficiency. We will regularly review your plan to help you stay on track and conduct detailed cash-flow analysis to ensure the sustainability of your arrangements. Get in touch today to learn more.
