14 December 2018
We tend to look forward to retirement as an opportunity to do some of the things in life we have been dreaming about. For many, there is also the opportunity to enjoy a more leisurely pace after a long life at work.
Equally, for some retirement may have come early due to changes at their place of work, family requirements or ill health. For everyone there is likely to be a mixture of feelings and thoughts as they start on this new chapter.
How can I make the transition easier?
As with any change, planning can help smooth the transition from the old to the new. There are many areas of pre-retirement to think about and to prepare both personally and financially.
The legislation changes of recent years mean that we’ll be increasingly in charge of our pensions, both while we’re building up our retirement pot and when we start to draw an income.
Many retiring today can look forward to several decades in retirement, so taking the right decisions about your pension pot is important if want your money to last as long as you do.
Working out how much you will need to live on and getting a state pension forecast will show how much you need to take out of your pension pot to cover your living expenses.
So, how will my finances change?
From 2019, the State Pension age will gradually increase for both men and women to reach 66 by October 2020. The qualifying age will rise again from 66 to 67 between 2026 and 2028.
It’s also important to remember that when you take money out of your pension, only 25% is tax-free. If you take out more than that, it’s taxable and you might find yourself paying tax at a higher rate.
From 6th April 2019, the amount of income you can receive before you pay tax (the personal allowance) increases to £12,500; basic rate tax will be payable on taxable income up to £37,500 and the higher rate threshold will be increased to £50,000.
The Financial Conduct Authority recently reported that a third of consumers taking money from their pension were keeping it as cash, and so could be losing out in terms of the income they are likely to have to live on throughout retirement.
How should I prepare?
For those contemplating retirement the points below will help you start preparations:
- Work out your likely retirement income
- If necessary consider ways to boost your pension income
- Budget for changes in day to day spending after you retire
- Clear debts before retirement
- Decide when to draw on your pension(s)
Preparing for retirement is important as these are decisions that can shape your standard of living, for the rest of your life. Working with a specialist in this area can give you the confidence you need to enjoy a fulfilling retirement.
Should you wish to discuss this issue further, please do not hesitate to contact your local UHY adviser.