What do you want to do when you retire? Most people have designs on seeing the world with a far flung holiday or two to fill their blissfully free schedules.
Yet while a cruise, beach holiday or dream road trip might be high on most wish lists, they can cost a lot of money. If you want to be able to live out your dream retirement, then you will have to plan in advance and ensure you can fund the lifestyle you aspire to lead.
Here are some golden rules to follow when drawing up your own retirement plan:
It’s never too early
The first and most important thing for every working-age person to consider is that it is never too early to start thinking about your retirement. With the rollout of automatic workplace pensions, most employees should already be setting cash aside for later in life.
It’s important to understand what a workplace pension is and what it will—and won’t—provide. Topping it up with an additional pension might be prudent—and starting early means that a relatively modest amount of money every month can add up to a tidy sum during your retirement. The later you start, the more you’ll have to pay to grow your pension pot.
Know how much you can save
Make sure you’re fully aware of the rules around saving for your pension. Up to £40,000 can be set aside tax free within your ‘annual allowance’. Be aware of this limit and, more importantly, the limits of your own budget. Your financial plan should be affordable and flexible—with the ability to scale up or down as your circumstances change.
It’s not just about your pension
It’s also important to understand that your pension isn’t the only thing to consider when planning for old age and retirement. Clearing your debts—including your mortgage and large loans—in the quickest time possible will free up your finances and ensure that you aren’t still dealing with these once you have finished work.
Work towards a clear goal
The dream retirement holiday might be handy inspiration, but your plan needs to be more fleshed out than that. Make sure you know exactly how much money your financial arrangements for the future are likely to provide. That way, you’ll know full well if you’re not saving enough to afford the lifestyle you want to lead.
If you don’t understand it, don’t do it
There’s more than one way to use your pension fund these days and that means making a choice between an annuity and an alternative way of spending that fund. There’s no right or wrong answer but you need to make sure you’re comfortable, whatever the arrangement.
As a rule—if you don’t understand a potential investment, don’t take it on. You need to be clear on the cost and what it will deliver for you in terms of a regular income during your retirement.
Your legacy matters
Your time isn’t up yet. Old age and retirement can be a long and enjoyable part of your life if you’ve properly catered for it. However, you need to be sensible and have an eye on what will happen when you’re gone. You’d surely not like to lumber your loved ones with a big burden? Make sure you’ve got a will and know what will happen to your estate. You may also need to head to the Money Advice Service to gen up on the latest rules around inheritance tax.
Don’t shy away from this topic. It might not be a nice thing to think about, but it should be part of your wider financial plan to ensure your legacy is sound.