Even though retirement is a time of life that many look forward to, this doesn’t mean to say you can simply stop working and expect to be taken care of.
As you approach your retirement years, it makes sense to get some financial advice and start thinking about your options, as you are bound to be faced by decisions that could determine how much money you will have to live on.
With this in mind, here’s a checklist to help you make sure you are ready for retirement.
Work out your retirement income
Around two years before you retire, start working out how much money you are likely to have during retirement. This will involve:
- Getting a State Pension statement – To provide an estimate of how much State Pension you might receive based on your National Insurance contributions.
- Looking at your defined benefit pension – Get your most recent statement showing how much pension you’ve built up so far and how much you might get in retirement.
- Adding up savings and investments – Along with a pension, this could be used to increase your income when you retire.
- Tracing lost pensions – The Pension Tracing Service, which is a free service run by the Government, could help you find old pensions that you’ve lost track of.
Clear your debts before you retire
Seeing as your income is likely to go down when you retire, any fixed repayments will take up a bigger share of it. Therefore, you should aim to start your retirement as free of debt as possible. Here’s how:
- Add up how much you owe on credit cards, personal loans and your mortgage.
- Check the interest rate you’re paying on each debt.
- Pay off the debt that charges the highest interest rate first.
Some people use their pension tax-free cash lump sum to clear debts, but this can be expensive compared to the amount of pension income you must give up in return.
Decide when to start taking your pension
Despite the fact you don’t have to stop working to take your pension, you must be aged at least 55 or in very poor health. So, set a target date for when you want to start drawing an income from your pension by:
- Checking what you said to your pension scheme provider.
- Thinking about how you want to take money from your pension if it’s a defined contribution pension scheme.
- Getting advice or guidance on your options – a government initiative called Pension Wise offers free help.
- Deferring when you receive your State Pension and getting a higher amount when you do start.
- Asking your workplace or personal pension scheme provider(s) if you can delay.
Budget for changes in day-to-day spending
Work-related costs such as travel and food could fall during retirement, and there’s a good chance you will have paid off your debts. However, spending for things like heating or healthcare is likely to increase, which is more difficult on a lower income.
Therefore, prepare yourself for these changes by drawing up a budget and thinking about the changes you might need to make to live comfortably.