Retirement Planning in the UK? Here Is Everything You Need To Know and Checklist
Planning for retirement? Planning in advance for your retirement is more important than ever. To make you aware of what it involves, here is everything you need to know.
What is retirement?
Retirement can mean different things to different people. Retirement, according to the dictionary, is to “withdraw from one’s position or occupation or from active working life.” Retirement and the term “financial independence” are often used interchangeably. Both are achieved when you have enough savings, investment income, and/or pension income to cover your living expenses. Work becomes optional!
The age at which you can get your State Pension has changed in the UK (and will change again in the future). In November 2018, the State Pension age was 65 for men and women. However, this is gradually increasing and now depends on when you were born. You can use the Government’s State Pension calculator to find out your State Pension age. The State Pension age will continue to gradually increase for men and women, and will reach 67 by 2028.
What will retirement planning involve?
Claiming a state pension without any supplementary income may not provide a standard of living you are used to, it is therefore important to organise and plan before retirement. Many people choose to make funds available by paying into a Personal or Workplace Pension that will add to a retirement fund over a number of years.
The earlier you arrange this, the more manageable your retirement will be, and the less of an impact it will have on your finances, particularly in the build-up to your retirement.
There are two components to retirement planning: Personal Planning and Financial Planning. Personal planning should be done first and it is the determining factor of your satisfaction with your retirement lifestyle. Financial planning is fundamental as it help to identify your sources of income and expenses and will establish your retirement budget (based on your personal plan).
So, what are my options?
Here is a brief rundown of your pension options, and what they all mean:
State Pension: this is a regular payment provided by the government, which anyone can receive who has paid National Insurance contributions. The amount received may vary and will be dependent on whether you are eligible for the basic or the new State Pension.
Workplace Pension: this is arranged by an employer and involves a percentage of your pay being invested into the pension scheme every month. You will normally get some form of tax relief from the government, and your employer will contribute to your scheme as well.
Personal Pension: This type of pension allows you to choose a pension provider to invest money in, which is then accumulated into an eventual retirement fund.
Important: Even if you choose to get a Personal and/or Workplace Pension, you’ll still be entitled to receive a State Pension as well.
Retirement Checklist for the UK
- Understand your options
- Work out your lifestyle and income needs
- Determine what your current pension could provide
- Review how your spending habits might change in retirement
- Decide whether or not your home will play a part in your retirement plans
- Check your State Pension entitlements using the Government calculator
- Explore the options for providing for others
- Boost your pension pot
- Speak with a professional adviser (and get financial advice)