People often question where their income will come from in retirement. The overall area of pensions can appear very complex and often confusing to the lay person.
Even the word “pension” can be misleading and often brings the focus of attention to only one area of a much bigger potential overall opportunity. Substituting the word “pension” for “assets” gives a much broader and clearer view to anyone thinking about how to finance their retirement years.
The next question is, “How long will I live for?” So use realistic mortality ages to give you an indication of the period you are planning for. If born in the UK then current tables predict age 77.2 for males and 81.6 for females. For a more accurate personal mortality calculation visit one of the many online providers.
Let’s explore a few potential incomes in retirement ideas here:
1. Basic Old Age Pension will be paid to an individual by the state once they reach the appropriate age. Currently the ages are 60 for women and 65 for men. A single person receives £97.65 and a married couples pension of between £156.15 & £195.30. Why wait? You can get a state pension forecast by using this link – http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008
2. State Enhancements are also available depending upon National Insurance contributions made throughout a person’s lifetime.
3. Savings of any form come next
4. Property is an asset that can be accessed if you are willing to explore the possibilities. Selling a principal private residence and then renting instead can be the difference between an abundant and a financially challenging retirement.
5. Property ownership also gives the possibility of renting a room, especially if you live in an area with high rental demand (university town) and you don’t mind sharing.
6. Business Sale is often cited as a sav- all and often is the only form of planning a person has done. Whilst many people have sold for multi-millions over the years, many have also gone bust. Timing is everything with the sale of a business, and recession, bank collapses and economic uncertainty may not help.
7. Income from a job you continue to do either part time or full time. Who says you need to draw a pension and put your feet up anyway? More and more people are working way beyond the generalised state retirement ages.
8. Assets that you know you can’t take with you when you go e.g. Painting, jewelry & collections (stamp, wine, pottery) can be a source of much needed pension capital.
9. Other, as this is by no means a complete list, continue to explore all the possibilities available and presented to you.
So do simple expectation calculations, to work out whether you are well on track or need to take action:
Some simple guidelines:
Every strategy is subject to change and so build periodic reviews into any plans you are making.
What works for one person will not necessarily work for you, so do personalise your planning and take responsibility for your decisions.
Many of us won’t be able to rely on Inheritance or the State to cover the costs of our twilight years, so it’s of the utmost importance to get the best possible return out of the money we set aside each month.
Do consider getting an extra perspective from a suitably qualified individual with expertise in pensions.