Old Couple sitting on bench enjoying their pension

Your Pension Age – Is It Time for A Thorough Retirement Review?

Thinking about your retirement, your pension age, and how you would like to live during those years, is a good idea at any age. For example, the earlier you begin saving for retirement, the more you can accumulate. And the mathematics of compounding means the earliest savings grow the most. That can make a huge difference.           

But that emphatically does not mean that in your 40’s or 50’s, when most people seriously turn their attention to retirement planning, increasing your savings doesn’t have a bearing. How much you save, how regularly you save, and how you invest can spell the difference between financial security and lots of lifestyle choices—for travel, for example—and money worries that may increase with the years.

Projecting Your Estimated Retirement Income

Your State Pension, based on your National Insurance contributions, could be as much as £8,750 a year. That works out, today, to £168.60 a week. That is a good foundation for retirement, but can you personally live comfortably on that? Are you willing to do so? (You can check how much your State Pension could provide, and at what pension age you can get it, online.) Keep in mind that the government has said it plans at some point to change the age at which the State Pension is available.

Most people, if they possibly can, take advantage of their workplace pension, giving themselves by far the best chance to be financially secure and live the way they want in retirement. You can contribute a very significant amount into your pension from pre-tax income. Up to £40,000 a year can be contributed and your employer is required to pay in to it as long as you do so. These kinds of savings, started at any age, can make a decisive difference. You are legally entitled to start paying into your employer’s pension scheme at 22 if you earn more than £10,000 per year. For further information see here. 

A distinction everyone should know is between a “defined benefit” i.e. a ‘final-salary’ pension  and a “defined contribution” plan. “Defined benefit” means that, depending upon how long you worked and how much you earned, when you retire the company provides you regular pension payments of a fixed amount for the rest of your life. Such plans are becoming much less common, now, replaced by the “defined contribution” approach. You pay a certain amount into your workplace pension, which is your personal retirement fund, and, depending upon how much you contribute, for how long, and how much the money earns in the financial markets, a certain amount will be available when you retire. The latter approach, of course, depends upon investment success over many years and you are responsible for some of the investment choices.

The State Pension and the workplace pension, for most individuals, are the core of their financial planning for retirement. Of course, everyone is free to save and invest in any of countless other ways. Such extra saving can be especially important, for example, if you started contributing to a workplace pension late in life, want more for retirement that it is projected to provide, and have the necessary income for additional savings.

Some of the Imponderables

Individuals who understand these basics of financial planning for retirement also realize that many other factors, not all of them within their personal control, will affect their situation by the time retirement actually arrives. For example, will inflation—now at about 2.5 percent a year in the United Kingdom—stay about the same in future years? Or will it increase, tending to erode the purchasing power of savings over time? Will the National Insurance scheme, and therefore state pensions, remain viable over coming decades? What about your employer’s workplace pension scheme, which in most cases is protected by the Financial Services Compensation Scheme?

 Your 40’s and 50’s are a good time to take stock of your retirement planning–and other considerations that inevitably will affect your retirement. A qualified financial planner can help you estimate how much money will have accumulated by a given age and, taking into account your projected expenses and how much income your “retirement pot” could earn, if early retirement could be a viable option.            

A great deal, of course, may depend upon the long-term return on the retirement investments that you personally control. A chartered financial advisor has expertise and resources to review your present and planned investments and advise you on investments that balance your hopes for retirement income with your tolerance for investment risk.

Retirement and Beyond            

More and more individuals, many who do not necessarily need the additional income, are continuing to work well past ordinary retirement age. A still small group, but also the most rapidly growing group, are men and women working in their 70’s. For many, the key to doing so willingly is either a change in their career to something they have always wanted to do or arrangements with an employer for a flexible work schedule that provides more leisure time.

FH Manning Financial Services offers the full range of advisory services on lifestyle planning, retirement planning, and estate planning. To discuss a full review of your ideas for yourself and your family during your retirement, your current financial planning, and your investment options, please feel free to email me at clm@fhmanning.co.uk.

It is always a good time to be sure that your financial planning is the best it can be for what you need and want for the future.