How to Create the Perfect Retirement Plan

How To Create The Perfect Retirement Plan

Retirement, for many, is a chance to continue doing the things they love most, from following their favourite football team across Europe to getting away from the British weather for a winter in the sun. However, waiting until you’re 67 to step away from the working world entirely can feel like a long time away. It’s for this reason why many are looking into retiring early, on a plan which ensures they don’t have to give up any aspect of their current lifestyle.

Unfortunately, retiring on your own terms is expensive, especially if you want to enjoy the comforts and luxuries you’ve had since you first started to earn a wage. What’s more, your retirement is going to last a significant number of years, so preparing in advance for these years is crucial. How do you create the perfect retirement plan, however?

How Much Do You Have?

The average employee who has been working for several years will have a pension pot building up. All employers must provide workers with a workplace pension scheme, which employees are then automatically enrolled in. You are automatically enrolled if you meet the following criteria:

  • Aged between 22 and the state pension age – in 2019, the state pension age for both men and women is 66. However, it is going to increase further to 67 by 2026.
  • Earn at least £10,000
  • Classed as a ‘worker’
  • Work within the UK

How much you have within this pension pot will depend on a variety of factors, including what type of scheme you’re enrolled in, how much both you and your employer pay in, and the tax relief the government has added to your workplace pension.

The current minimum contribution limits are 5% for you as the employee and 3% for the employer.  That is a maximum of 8%.  Tax relief is also available in most situations reducing which makes up part of your 5% contribution thus reducing the amount you actually pay.

To work out how much pension you have to play with in retirement, you first need to discover how much is in your savings already. Once a year, your pension provider should send you a statement. However, you can also choose to check the amount online, should your provider allow you to track it via their website.

You can also check your State Pension online, using the gov.uk website. You can then accurately see how much you have for your pension.

How Much Do You Need?

Once you’re aware of how much pension you have, you need to work out how much you need.

How much do you predict your winter away in the sun will cost? How much, on average, is a season ticket for your favourite football team?

Also add into this amount the monthly outgoings you will still have: mortgage repayments, utility bills, and other lifestyle factors.

How To Achieve The Money You Need

Savings are the best way to build your pension pot up, but you need to be saving in the right places. Therefore, it’s highly crucial you find the best pension scheme for you and your savings. Of course, if you have the opportunity to pay more into your pension, it’s recommended you do so, as this is one key way to increase your amount.

Alternatively, you can choose to switch your pension from the government-backed workplace scheme to a private scheme. A private scheme may offer you higher interest on the money you pay, therefore, enabling you to withdraw a higher amount when you choose to.

Why A Pension Is The Best Plan

A pension plan is the best solution for ensuring you have the funds available to enjoy your lifestyle for the rest of your life. While employers now have a commitment to providing a workplace pension, if you’re not automatically enrolled, it’s imperative that you do so as soon as possible. There are several reasons why a pension is a wise move, including:

  • A pension is tax efficient. What this means is for every £1 an employee pays into a pension scheme, the tax man will you give 25p. When you’re ready to withdraw your pension, 25% is tax-free. If you accrue £100,000 in your pension pot, £25,000 is tax-free.
  • Today’s pensions are highly flexible. Long gone are the days where you had to buy a monthly annuity pension from an insurance company. Now you can draw as little or as much as you’d like out of your pension after the age of 55.
  • Your pension can be passed onto your loved ones in the wake of your passing. You can even leave it as a lump sum, so you know your family is looked after when you’ve gone.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Contact us to start your retirement plan.

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About the author: Tim Veiro