Funding the lifestyle you want

Get ahead on planning your retirement

Do you feel confident that you have saved enough money for your retirement? If you do, you’re in the minority; a new study [1] shows that only 25% of retirees describe themselves as ‘very confident’ they have accrued enough to see them through.

There’s no doubt we are living in challenging times; the soaring cost of living in the UK is forcing many people to adjust short and long-term financial plans. Even those who have saved diligently over the years may be feeling more anxious about how they will manage once they stop work.

Yet this is not the time to bury your head in the sand. There are various options that will allow you to maximise the savings you are able to make, as well as ways to cut back on unnecessary expenditure. By taking steps to shore up your savings now, there’s no reason why the size of your retirement pot should ever keep you awake at night.

Ready to get started? Here’s what we recommend.

Add up all your sources of income

Your main source of retirement income may well be your pension plan. But it’s important to take all income into account when planning for retirement. Don’t forget to factor in any savings kept in an Individual Savings Account (ISA) and money tied up in other investments, such as the income you may receive from a rental property.

And don’t forget to include your State Pension, which is currently £185.15 a week for a single person with a full entitlement. While it may well not be enough on its own, every little helps when it comes to funding your retirement. Adding up all your savings and income might leave you with more than you think.

Watch out for unnecessary tax bills

It’s common for retirees to end up paying more than they need to in tax. Therefore, it is important to have the right plans in place.

If you already take, or plan to take, income from multiple sources, it’s important to consider how this is taxed. The frequency and method by which you take your money can make a big difference to how much tax you pay. Carefully taking out planned amounts may result in paying less tax than taking large sums irregularly.

When it comes to pensions you can typically take 25% tax-free from age 55 (57 by 2028). This can be taken either in one go or spread over a longer period. After this, any money you take from your pension is taxed. It’s likely that the more you take, the more tax you’ll have to pay – although how much will depend on your personal tax band. So if you take all of your pension savings at once, or in several lump sums, you could wind up paying more tax than you need to.

By taking your pension savings over a number of years and taking just enough to stay in the lowest tax band, you could keep more of your money overall.

Make the most of your Individual Savings Account (ISA)

Another way to reduce your tax bill is to make the most of any savings you may have made in an ISA. You don’t pay tax on any investment growth or interest you earn, or on the proceeds you take from an ISA. It’s a tax-efficient way to save.

Consider whether you could use any ISA savings you have before you need to access pension savings. As well as being a cheaper way to spend, it means your pension would be invested longer and could potentially grow in value. The value of investments can of course always go down as well as up though, so be aware you may still get back less than you paid in.

Another option, if you’ve already started taking an income from your pension, is to use your ISA savings to supplement that income. This may allow you to take smaller payments from your pension and avoid paying higher income tax.

There’s a lot to consider when it comes to tax – and legislation is always changing. Your individual circumstances and what other sources of income you may have all play a part in how your tax is calculated.

Keep track of your investments

Where and how your money is invested is one of the biggest factors in determining how much money you will have for your retirement. For this reason, it’s essential to review your investments regularly to ensure they stay on track and remain aligned with your plans, values and attitude to investment risk.

Perhaps your pension savings are invested in reasonably high-risk funds that have the potential to grow significantly in value, but are also more likely to be impacted during periods of market volatility? By switching to lower-risk investments you may gain more stability and are less likely to see big swings in the value of your savings.

Yet if you are relying on your pension savings to provide you with a comfortable income for the rest of your life, you need to make sure that your investments demonstrate growth potential. This is particularly important in the current climate, where retirees face the double impact of rising inflation and potentially having to last for many years.

Ready to review your retirement plans?

If you have questions about funding your retirement, or if you’re feeling anxious about your ability to spend money in retirement, we can help. Speak to us today to discuss your options.

 Source data:

[1] Class of 2022 UK retirement report consumer research of 2,000 UK adults for abrdn who were either planning to retire in the next 12 months, or who had retired in the 12 months prior.  Research was conducted by Censuswide in late November / early December 2021.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). 

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. 

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.