1.) Check your State Pension
As a first step in your retirement planning, it’s simple to check how much state pension you are entitled to. You can do this easily on Gov.uk here. The amount you receive depends on how many ‘qualifying years’ you have earned – how long you have been paying National Insurance contributions. If you have 35 full years, then this will qualify you for the maximum amount of guaranteed income. If you have gaps, you may be able to pay to fill in these missing years.
2.) Pay off your debts
You should certainly aim to try and have paid off all your debts before your planned retirement date. No matter how good your personal pension plan, your total income will need to last in retirement. You do not, therefore, want to be spending your pension income on paying off debts. This includes loans (e.g. for purchases such as cars), mortgages, and credit cards. Although there are ways to manage debt through, for example, debt consolidation loans, this may not be the best option. If you are worried about outstanding debts, a financial adviser should be able to help suggest the way ahead.
3.) Consider downsizing
Downsizing – moving to a smaller or cheaper property – is a big decision. However, it’s a popular option for equity release According to Prudential, downsizing your home can raise over £85,000 (1), giving you more financial freedom, and it is often a good idea for a lifestyle change. There are now smaller retirement properties available in nearly every town and city if you wish to go down this route, so you can keep your existing social life and community connections without having to move far. Even if you stay put, you can shop around to cut your energy or water bills and reduce monthly costs this way.
4.) How much money will you need?
There are many budget planners available online that will give you an idea of what retirement income you need to live on, year by year. As a general rule, according to Which?, you should aim for two thirds of your current salary (2). You should also consider how your needs might change throughout retirement – for example, increased health and care costs later on. Our article on ‘How much do I need to retire?’ gives further tips.
5.) Check your pension options
Now is also the perfect time to ensure your pension policy is going to do what you want it to. Your situation may have changed since you started paying into your personal pension. If you have a defined contribution pension, you need to consider how you are going to make withdrawals. You may wish to take the income drawdown option. Although this potentially means more financial freedom, it needs careful planning. If you prefer a guaranteed income, you may wish to consider buying an annuity. A pension adviser, like our team at Pension Works, will be able to ensure you are getting the best deal, and give you the peace of mind to focus on other areas of your retirement planning.
(1) downsizing your home can raise as much as £85,300