PLANNING FOR RETIREMENT
Freedom of choice can help you plan and construct your retirement income but only with the right preparation and advice.
You may be retired a long time
In its report Retirement Income Uncovered, Old Mutual Wealth discovered some interesting facts from the people it interviewed. On average men retire at 64.3 and women at 63.1. At these ages men can expect to live until 84.3 and women until 84.7 (Source: Old Mutual Wealth – Retirement Income Uncovered.)
Being retired for 20 years or more means you need to plan for an income that funds retirement for this long. Looking at it another way, at 65 you have a one-in-four chance of living to 94, and almost a one-in-ten chance of living to 100.
To make your money last this long you need to plan carefully and as early as possible. Your Positive Solutions adviser will help you prepare so that you avoid the risk of ruin.
Retirement is changing
With the demise of final salary schemes most people are taking more of a portfolio approach to retirement income. As well as traditional pension savings and the basic state pension, people are using ISAs and other investments, such as bonds, to supplement their incomes. Also, semi-retirement is becoming more common with people continuing to work part-time in retirement either through necessity or simply because they want to.
In fact, people approaching retirement expect part-time work to contribute 28% of future retirement income (Source: Old Mutual Wealth – Retirement Income Uncovered).
Don’t pay any more tax than you have to
Having spent a long time carefully building your retirement fund the last thing you will want to do is give a big chunk of it to the tax man. This is another reason why you need to plan carefully how you use your retirement fund. Take too much out too quickly and instead of being a basic rate taxpayer, overnight you can become a higher rate taxpayer.
By carefully planning with your Positive Solutions adviser you will work out how best to use your tax-free cash entitlement so you maximise your personal allowance. And if you must draw a large sum from your retirement fund you can at least do so in full knowledge of the tax implications, so you do not get a nasty tax shock.
Planning makes a real difference
Research shows that having a target income and getting the right financial advice can make a marked difference to someone’s retirement income. Retired people without a target have an average yearly retirement income of £18,000. Focus on a target and take advice on how to hit that target and the average income rises to £24,175 (Source: Old Mutual Wealth – Retirement Income Uncovered.)
How does this happen? It’s all about understanding how to use the available products to construct retirement solutions that aim to hit your target. This may mean using annuities, flexi-access drawdown, uncrystallised fund pension lump sum (UFPLS), other investments, or a combination of several products.
But the best way to know what products to use and how to use them is with professional financial advice. And even though you may have already started income drawdown, this doesn’t mean you can no longer invest in a pension plan and enjoy the tax benefits. You can still invest up to £4,000 in a tax year and receive tax relief at your marginal rate of income tax.
THE VALUE OF PENSIONS AND INVESTMENTS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.
TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE ADVICE ON ESTATE PLANNING AND TAX PLANNING.