Delving into your finances and taking a really good look at them can feel like a daunting process. However, if you do, it will help you get things in order, so you will have less to worry about when you come to retirement. Try following these five steps for successful retirement planning.
Step 1. Start Getting On Top Of Your Finances Immediately
There is no point in waiting until you retire to get on top of your finances. Now is the time to adjust your spending habits accordingly. To help with this change, there are plenty of tools for managing your money. For instance, a budgeting application will clarify how much money you can spend across different categories of your expenses. If you get into the habit of strict budgeting now, you could start saving a little bit extra into your pension each month.
Step 2. Consider Your Retirement Income Sources
A pension is likely to make up a significant proportion of your retirement income. The good news is, if you’ve had several different employers throughout your career, you could have several workplace pensions.
Despite workplace pensions being around for decades, many people remain unaware they have one or more pensions. Therefore, many pensions go unclaimed, become lost, or get forgotten about. If you think you might be in one of these categories, it is crucial to relocate your workplace pensions because even a small amount of pension money could help you pay some living expenses each month. If you are struggling to remember who your pension provider was, the Pension Tracing Service should be able to help.
You should also find out how much you are likely to receive from the State Pension when you retire. You can get a State Pension projection from the gov.uk website. Although unlikely to fully support you during retirement, the State Pension is an excellent top-up to your other retirement income. These additional income sources could come from rental properties, other investments, or equity release from your home. Whatever retirement income you have, always bear in mind the tax implications.
Step 3. Be More Self-Centered
Helping your family and loved ones out during times of financial stress is an admirable trait. However, it is a habit that around 20% of people believe inhibits their own retirement savings. You should understand that it’s OK to be a bit self-centered when it comes to saving for your retirement. After all, the more financially secure you are in retirement, the more you can help out family and loved ones.
Step 4. Create a Vision of Your Retirement
Consider the things you want to do during your retirement, and create a vision of living that lifestyle. Once you have a clear picture, you can work out how much you’ll need to afford it comfortably. Of course, it is challenging to know exactly how much you should be paying into your pension. However, understanding the retirement lifestyle you want to live will give you a good idea of what you need. Also, you will have a figure on which to gauge how your pension is performing.
Step 5. Understand Your Pension Options
You should understand the various options you have for your pension. For instance, from fifty-five, you might be able to access 25% of your pension fund as a tax-free lump sum of cash. However, to ensure you’re making the right decision about your pension, you should consult a regulated financial advisor as accessing your pension early could leave you a lot worse off in retirement.