It is no secret that most of us humans crave certainty and stability in many aspects of our life. We like the comfort of knowing the sun will rise in the East each day and what time our tea will be on the table. Even those that like to live on the edge will have been thrown for a loop by the ongoing Covid-19 pandemic. Covid-19 has affected every aspect our lives but possibly none more so than the financial worries it has brought about for large swathes of the population. One of the most important areas of financial advice is retirement planning and you may be thinking about how the pandemic will impact your ability to retire.
Here at Informed Financial Planning we wanted to tell you about a few things you can do to make one of the most important periods of your life a little more certain.
So, what can you do?
Ensure you have a suitable emergency fund
We would always recommend holding between three and six month’s essential expenditure in cash. The importance of this has been highlighted by the pandemic as many jobs (or at least salaries) were cut overnight. If you have this buffer, it softens the immediate panic and allows you the time and breathing room to plan and rebuild.
Check your State Pension entitlement
The State Pension is one of the most valuable, but often overlooked, sources of income when it comes to retirement. This provides a guaranteed source of income for life that will increase in payment and keep pace with inflation. A good starting point when looking at retiring is to find out when your State Pension will be paid and how much you are entitled to. You will also find out how many more years of National Insurance Contributions you need to pay to be entitled to the full amount.
Check your entitlement here: www.gov.uk/check-state-pension.
Consider your retirement date
An easy way to add a bit of certainty to your retirement is to work towards a planned date. This will allow you to take stock of where you are now, and what you need to do to meet your aims by your retirement date. This could be sorting over payments on your mortgage, so you retire debt free, or increasing your pension contributions to make the most of tax relief while you are still working.
Calculate your retirement expenditure; be meticulous!
This is an area in which you cannot plan too thoroughly. Start by knowing what you spend now, and whether this will increase or decrease in retirement. Will your costs initially decrease due to less travel to work, but then increase as you have worked hard all your life and want to treat yourself to more holidays?
Factor in any lump sum needs you may have and how you plan to finance them. This could be anything from the cruise of a lifetime to helping your children with house deposits; it all needs to be factored in.
Consider your current pensions and investments and their access options
One of the most important considerations is what you have and how you can get a hold of it. For example, you cannot access pension funds until age 55 (due to rise to 57 by 2028). So, if you plan on retiring before then, you need to be building some other form of accessible savings pot. You could consider other investment vehicles that can be accessed at any time.
When it comes to your pensions, you may have several access options.
Annuity – A guaranteed income for life. Having an annuity that meets your essential expenditure could provide the ultimate certainty in retirement.
Flexi access drawdown – Draw a tax efficient non-guaranteed income. Your fund can remain invested for life with the potential for growth, but the fund is subject to investment risk.
The best way to sort through the various options and what may be suitable for providing you with an income in retirement is to speak to a financial adviser.
Seek financial advice
Informed Financial Planning are here to help with any concerns you may have about your finances in light of the current situation. We can provide anything from a simple assessment of ‘can I still retire?’ to a full financial plan of how, when, and what to do now to ensure your retirement is a little more certain. Give us a call on 01482 219 325 or email [email protected].