Get ready to retire

When should I start planning my retirement?

Retirement, as we know it, is no longer the same. People are living longer and have more choices than ever on how to access pensions. However, this newfound freedom comes with a significant transfer of risk, so we all need to make our money last longer. To better understand this changing landscape, we should examine the key themes of timing, risk and planning.  

For years, we have structured our lives so that we work for the majority of the time, saving for a comparatively short retirement. Nowadays, with improved healthcare and healthier lifestyles, people are living longer, with many opting for earlier retirements. This means that it’s essential to plan early as most will seek to spend longer in retirement and also try to pass their wealth onto future generations tax-efficiently.  

So, in summary, the earlier you start planning your retirement the better, as it will give you more choice in your later years.

How can I maximise my pension pot?

You need to take advice, formulate a plan, and regularly review it as your circumstances change.  

Previously, you were forced to invest in an annuity regardless of value, whereas now you can choose to maintain risk in the lead-up to retirement as higher inflation erodes the real value of wealth. The result is the need to stretch funds saved throughout a career over an extended period, making effective financial planning critical.

A second major shift has been the reduction in ‘defined benefit’ (DB) pension schemes. Very few of these have survived over the years, and most are in the public sector as companies cannot afford to provide a guaranteed level of income for their ex-employees indefinitely.

Most schemes have moved to the ‘defined contribution’ model, where an employer will contribute an amount, often matched by an employee. The return is based on investment decisions and performance, and good advice in later years on how to maximise and access your pension is critical.  

The advice you receive will involve calculating on an ongoing basis how much you can contribute to a pension as the rules change over the years and how to withdraw from your pension in the most tax-efficient way to preserve your savings. Additionally, advice will be given on the underlying investments to try to maximise the investment return for a given level of risk.  

As the risk has shifted from company balance sheets to individuals, we now wrestle with strategies like flexi-access drawdown to mitigate the absence of guaranteed income in later life. The transition toward defined contribution models introduces uncertainty for retirees, potentially necessitating retirement delays if their savings fall short. Unexpected events and high inflation have also influenced people’s retirement plans, prompting greater financial engagement.

Are my retirement goals achievable?

Good planning and diversification across tax wrappers can add considerable value to your retirement journey as legislation has and will continue to evolve. For example, the minimum age for drawing from private pensions is increasing to 57 in April 2028 and capital gains tax exemption has been halved.  

Retirement has become more complex, requiring more sophisticated strategies to blend pensions, Individual Savings Accounts (ISAs), investment accounts, and bonds to deliver tax-efficient withdrawal strategies.  

One size no longer fits all and a wide blend of products with various tax treatments is now crucial. Adjusting to modifications in laws, taxes and products simplifies the process of accessing a non-pension portfolio prior to reaching the age of 57, a key factor to consider with the advice and guidance of your adviser.

Through active reviews of risk appetite with an adviser, you can manage the level of risk you take in your portfolio as you approach retirement and the need to draw on capital. We can help to mitigate the impact of sequencing risk when drawing on your wealth.

Retirement has changed and will continue to evolve. Fortunately, there are options available that, if used properly, will allow for lots of flexibility, tax efficiency, and the building of a strategy that can help you reach your goals and make the most out of an extended retirement – if that’s what you’re aiming for.

If you’d like help planning your retirement, please get in touch for a free, impartial conversation.