Over 11 million people aged 65 years or older in the UK, accounting for 18.6% of the population. This number has increased since the 2011 census, which only had the over-65 demographic make up 16.4% of the population. While a small percentage remain in the workforce into their elderly years, most older adults enter retirement, where they are meant to enjoy a happy post-work life.
For many, retirement may be the end point of their lives. But LHH’s article on retirement says otherwise. Rather than seeing it as an event, retirement should be a process — an opportunity for self-discovery, fulfilment, and expansion. People are often so focused on leisure that they forget they can still pursue meaningful pastimes, like going back to school or engaging with a startup. However, these goals and pursuits may need significant capital, so planning for retirement is essential to accommodate these interests. Here, we visit five key steps to planning your retirement.
Decide when you want to retire
Depending on when you plan to retire, you may have a longer or shorter window to save money for the future. If you plan to retire earlier, it’s crucial that you manage your current expenditures wisely. But you don’t have to sacrifice enjoyment to attain financial stability. As we highlighted previously, frugal living is about prioritising things that matter and gradually saving for big expenses, like expensive products or a vacation with friends and loved ones. By making wise choices with your money, you can have a better financial position and more capital for retirement.
Measure your predicted expenditures
The best way to keep on track towards retirement is to have a defined amount of expenses. How much you spend will depend on your retirement goals and needs, so tracking your current spending is helpful to get a rough estimate for long-term planning. In addition, some other factors you should consider are:
- Care requirements
- Base income
You may also want to factor in additional costs for which you may not have concrete plans, such as helping family members buy their first home.
Review your income sources and assets
While most people will rely on state pensions and savings for their retirement, some may have additional income and assets that allow them to adjust their retirement plans flexibly. For example, if you don’t need a pension immediately, the UK State Pension allows you to defer it. For every nine weeks of deferral, you gain an additional 1% in your pension, around 5.8% extra income after 52 weeks. Other income sources may come from properties that you sell after an appreciated value, your investments, private pensions, and much more— making it essential to review your income sources to maximise your expenditures.
(Use this retirement calculator to decide how much you need.)
Minimize other obligations
To eliminate any money worries during retirement, it’s critical that you dedicate your working years to settling any outstanding debts like a mortgage. Financial Reporter’s piece on retiree debt found that as much as 32% of people retire with an average of £20,650 to pay off, a debt burden that will take a toll on finances for at least three years into retirement. While it’s possible to withdraw a lump sum of pension early to help you clear your debt, this is not recommended as it will affect your regular income later.
Consult a professional
It can be challenging to comprehend what you should expect from retirement fully, so consulting a professional can help you make the most out of your money and improve your retirement. Their expertise can particularly help deal with legal obligations. In the UK, there is a limit of £1,073,100, which you can draw from your pensions without extra tax. Having a financial advisor can be a way to find tax-efficient alternatives when you exceed this amount, allowing you to enjoy more money into retirement.