Have you prepared for retirement? If the answer is no, you’re part of an increasingly large number of people in the same situation. For a lot of individuals in the UK it’s hard enough to get from month to month without factoring in pensions and savings – increasingly so with the impact of the financial downturn on the economy.
With every passing year, the average UK life-expectancy increases – meaning you’re likely to be relying on your pension longer than anyone before. For that reason, it makes sense to think soon about some ways of ensuring financial comfort security though your later years. For every habit that will keep you comfortable in retirement, there’s a bad habit that will put you at risk – for that reason, have a look at our 7 dos and don’ts relating to financial stability in retirement.
Don’t rely entirely on the state
The basic state pension currently stands at £159.55 a week – which is very small compared to any full-time wage. A state pension is not designed for financial stability – instead, it is an amount intended to cover food and utilities, with little or nothing left over.
What’s more, research shows that less time at work generally equals a greater spend for most people – that’s not to say that your spending will go up dramatically, but trying to balance increased free-time with a significantly reduced income just doesn’t work.
Do start thinking about retirement now
If retirement is a long way off then the prospect of planning for it now might seem premature – but don’t be fooled, around 50% of pensioners say they would like to have factored more time into planning for retirement – with around 33% saying they are experiencing reduced comfort since finishing work.
There are a number of things you can be doing now, saving, investing or exploring private pension options – don’t be one of the people who forever puts off planning to regret it further down the line.
Don’t rely on inheritance
If you have a financially secure parent or parents with their own homes then you might feel that there’s no need to plan for future financial security. However, relying on inheritance can be a risky tactic. Firstly, there is no reason to believe people will live well into their 90s – which can often mean a child being well into retirement age with no sight of that expected income.
What’s more, even if you are certain of your parent’s financial position, there’s an increasing chance that property prices will grow to a point where a hefty amount of inheritance tax is due, denting your plans – and that’s before you’ve considered funding any care provision that might be required as your parents age.
Do factor retirement into your budget
Many financially secure people say that having a budget was one of the key steps toward becoming comfortable. How this works for each individual is a little different – but essentially you would want to have income and expenditure columns. There is no need to worry about any amount of money being left over when all your expenditure is taken from your income – provided you’ve factored everything in to your costs.
When planning for retirement, ‘savings’ or ‘pension contributions’ should become one of those costs. It’s very easy to think that you can ‘put away whatever’s left’ when the end of the month comes around – but this rarely happens without planning. Instead, decide on an amount of money and treat it in the same way you would a bill that is taken each month.
They key is to make it an achievable amount of money – it’s better to save consistently than it is larger sums sporadically. As you become comfortable with the amount you’re putting away you can adjust upwards and calculate what that means to your retirement as you continue to save.
Don’t rely on a partner
Until recently a married person was able to ‘top-up’ their entitlement to a pension assuming their other half had a fuller National Insurance record. However, this is now a thing of the past, so pensions will be based entirely on your own contribution.
It’s not just changes in pension policy that mean relying a spouse can be a reckless idea, while a couple can have a huge history together, putting your financial well-being entirely in the hands of someone else does sometimes end badly – so whether it’s a state or private pension that you’re banking on always being accessible for the both of you, you should always look to keep yourself financially buoyant should there be any big life changes.
Do try to be debt free when you hit retirement
It might be easier said than done, but aiming to be free from debt when you reach retirement can make life enormously more comfortable. If you’re a number of years away from pension age this gives you more opportunity to plan how becoming debt-free will look – do you need to seek specialist debt support? Would sitting down and working out a black and white budget help? Does being in debt change your thoughts about taking full retirement?
Everyone’s situation is a little different – but virtually everyone in the UK is in some level of debt. Don’t let retirement creep up on you, you can very easily find yourself in a situation where your pension just doesn’t match your out-goings. For more information and advice read Getting Out of Debt and Staying Out of Debt.
Don’t rush in to cashing-in
It can be enormously tempting to ‘cash-in’ one or more of your pensions to take a big chunk of money and do the things you’ve always wanted to. Try to temper your thoughts of exotic locations or big money purchases – even if they look like they’ll add to life in the short-term, your lifestyle might feel the pinch more long-term. It’s easy to think that a pension signifies the later stages of life – but there could very well be 30 plus years to fund beyond your holiday of a lifetime!
Plan – but don’t be down
The key handling finances with retirement in mind is to strike a balance that works in the short and long term. There’s often no need to cut your spending to the bone thinking about retirement – but at the same time, it’s important not to be reckless thinking the time will never come. Budgeting is vital, getting your plans on paper is a great way to get an overview of what life could look like as you reach your golden years.