How to plan for your retirement

April 20th 2010

First, assess your current position
You have two main decisions to make; when you retire (and what income you would like) and how to take an income from your savings. But first it’s important to take stock of where you are.

Almost everyone is entitled to a pension from the Government, but it may not amount to much. The basic state pension is currently £97.65 per week for a single pensioner and £156.15 for couples, however this may be less if you have large gaps in your National Insurance contribution record. You can get an estimate of how much you might get in total by logging onto www.direct.gov.uk.

You may also be entitled to receive an additional state pension. On top of which you’ll hopefully have one or more private pensions. You can ask your financial adviser for an estimate of what you might get from them. You may also have savings such as ISAs that you could use to increase your income if needed. Add them all in to give you a complete picture of where you are.

Then, think about when you’d like to retire
When you know where you stand, you can think about when it would be realistic for you to retire. Remember that you won’t get any pension from the Government until you reach state pension age. However you can start to receive private pensions from the age of 55 and it doesn’t have to be linked to when you stop work. If your pension scheme allows, you can also take your pension in stages. This might help you move to part-time work if you’re not able to retire completely when you’d ideally like to.

Lump Sum
When you start to draw your pension you have more choices to make. You’ll probably want to take the maximum tax-free sum which is normally a quarter of the total value. You can then buy a guaranteed income for life, known as an annuity. If you do, you need to decide whether you want it to increase each year and whether you want it to continue to be paid to your spouse or partner after you die. Choosing these options will mean a lower starting pension.

Income drawdown
If you have about £100,000 or more in your pension, consider whether you should delay buying an annuity and instead start with an unsecured pension, which is sometimes know as income drawdown. This allows you to leave your pension fund invested and draw an income from it, within limits set by the Government. That gives you more flexibility than an annuity, but it isn’t as secure.

If you don’t feel you’ve saved enough
If you simply don’t have enough saved up to give you an acceptable income by the time you retire you still have options. For instance, you could work for longer than you planned to. This may be unattractive, but could make a big difference to your income when you eventually do retire.

If you own your own home you could consider whether you could use it to supplement your income, either by downsizing or possibly by drawing some of its value through an ‘equity release’ arrangement. These plans have had a bad name in the past but are now regulated and have a number of safeguards to protect consumers.

Managing your retirement income can be a complicated process. We can help you consider what your options are and to choose the right one for you.

Prosperis are independent financial advisers providing a comprehensive range of financial advice. Our independent status ensures that our advisers always act in the best interests of each individual client. To speak to us about how we can help you plan for your retirement call 0113 287 8200 or e-mail advice@prosperis.co.uk