If you are hoping to retire in the next few years, there are many things you need to think about – but it can be hard to know where to start.
Here we run through some essential tips to get you started.
Map out your strategy
Many people arrive at retirement with a large lump sum saved, but without a clear idea on how they will access it or how much they will really need in retirement.
However, these are important considerations that can make thousands of pounds difference to your annual income.
A good tactic is to work out what your essential outgoings are going to be in retirement – the costs of utility bills, running the car, food, petrol, insurance. The things you absolutely can’t do without.
After that, what do you anticipate your discretionary expenditure to be? This includes things like holidays and cars – the things that will make your retirement as enjoyable as you want it to be.
Then, you will have a solid foundation you can work backwards from as you work out what you need to draw from your pension or other retirement savings.
Create a timeline
Decide when you are going to retire, but be realistic.
If you want to retire in five years’ time, for example, are your savings on track to accomplish it? Can you afford to keep on investing to top up your savings? How much can you afford to save, and how much will that allow you to draw as an income?
Also, how do you feel about investment risk?
It can make most sense to keep a large part of your pension pot in the stock market, but not everybody is comfortable with that.
You need to come to terms with these decisions sooner rather than later and expert advice can help.
Get clear on tax
When you draw income from your pensions, you will be taxed at your marginal rate of income tax.
With ISAs, on the other hand, you can make withdrawals free of tax. This is an important distinction as you build up your retirement savings.
As such, consider utilising your £20,000 ISA allowance each tax year alongside making your pension contributions.
This gives the flexibility to make tax-free withdrawals from your broader savings, while perhaps taking smaller amounts from your pension pot. Remember, too, that your pension pot can be bequeathed free from inheritance tax.
Think about structuring your income
This is one of the most common requests for help from Brewin Dolphin clients as they near retirement, and it is made a lot easier if people think ahead.
By structuring your income in a tax-efficient way, utilising your personal allowance, tax-free lump sums and ISA withdrawals, it is possible for a couple to draw a significant income free from any tax. Again, take advice as soon as you can.
The value of investments can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.