Retirement checklist

Furthermore, it is helpful to be able to stress test the effects of different market events or life events on your retirement to reassure you that it is the right time to retire, and that it is affordable. After all, who wants to go back to work after retiring? Of course, cashflow modelling is merely a model towards the future so is never going to be absolutely accurate, but it allows us to consider the overarching plan and ensure that this is feasible.

Think about what you really want from retirement

Imagine tomorrow you wake up and you are retired, how much would you need to live on each month? How much would you spend on holidays? Remember, you might be more agile and adventurous in the earlier years of retirement, so this should be accounted for in your expenditure. Using the early years of retirement, or even time before retiring, to really think about what you want from it can lead to more fulfilment during retirement.

By thinking about this early on and in advance of retirement, and with as much detail as you can, the cashflow planning exercise mentioned above can be as accurate as possible and ensure that you have enough when assessing the sustainability of your retirement goals.

Consider consolidating pensions

It’s unlikely that during your career you’ve remained in the same role and same pension fund throughout, therefore you are likely to have multiple pension funds accumulated from these roles that are with different providers and under different investment propositions. Provided there are no additional benefits attached, consolidating these pensions into a single proposition can provide a streamlined investment proposition suited to your circumstances, as well as reducing the administration of multiple pensions with multiple providers.

Evaluate how your funds are invested

Major life events such as retirement are an opportune time to rethink how your funds are invested and what you are comfortable with from a risk standpoint. During your working life, it is common for funds to be invested in what’s known as a default fund, which attempts to appeal to the masses but is therefore not appropriate for everyone, as it is not specific to you! Everyone has a different feeling towards risk, and everyone is in a different situation with differing wants and needs, so your pensions and investments need to be specific to you.

Factoring in what is important to you in retirement can help shape the way you think and invest your funds and may mean you don’t have to take as much risk as you thought or may mean you need to increase risk to achieve your goals.

Mortgage repayment

A common concern people have when they retire, if it is still a factor, is how to repay their mortgage, with the average mortgage debt outstanding at retirement at £38,000 [1]. For many, they may take the mindset that they will use their pension tax-free cash for repaying their mortgage, however, this may not be the best option. Tax-free cash in your pension is an extremely valuable and flexible tool that can play a key role in your retirement planning. Using your tax-free cash as an income source in retirement can help to improve longevity of your funds, may be more tax efficient  and potentially increase income levels. There are a few points that should  be considered before using tax-free cash to repay an outstanding mortgage:

• How will this affect your future retirement income?
• What is your current interest rate on your mortgage?
• How much tax-free cash do you have available?
• Would you be better off using your tax-free cash as part of your income strategy rather than repaying debt.

Annuity vs drawdown

A huge concern for retirees is how to take their pension funds in retirement. Since 2015, the Pensions Freedom Act has allowed retirees to take their pension via flexible drawdown, meaning they can take as much, or as little, as they require to fund their retirement on an ongoing basis[2]. It gives people the flexibility to vary their income depending on their circumstances and other income sources, for example, using their personal pensions as a bridge to state pension age, then reducing or stopping this income once in receipt of their state pension.

Given these benefits, since 2015, along with almost 0% interest rates for the majority of that time, annuities have almost been redundant. UK annuity rates have risen over recent years because they’re closely linked to interest rates. Annuity providers usually buy government bonds to create reliable returns for their customers. When interest rates go up, bond returns rise with them. That boosts annuity rates too, which means that annuities now are a much more common retirement choice than just a few years ago. [3]

For many, the benefit of taking funds flexibly and being able to pass on funds outside of their estate outweighs the guarantee of income throughout retirement. For others, by annuitizing removes worry and uncertainty into retirement. It may be suitable to even do a ‘mix and match’ approach by partially annuitizing to cover a certain level of expenditure and retaining the rest in a drawdown fund.

The truth is, there is no blanket correct answer, it’s all circumstantial. Working with a financial planner can help you to work out which is the right route for you, or even a combination of the two.

Check your state pension entitlement

State pension entitlement is built from National Insurance contributions during your working life. To qualify for a full state pension currently, you need 35 full years of National Insurance contributions [4]. But what happens if you’ve taken a career break? Had children and not claimed NI credits? Moved abroad? Or not had a 35 year career? It is sometimes possible to top up National Insurance contributions from years where you haven’t fully contributed by making voluntary class 3 contributions at a current cost of £17.45 per week or £907.40 per year.

You can check what you are currently entitled to by completing a state pension forecast here: Check your State Pension forecast – GOV.UK (www.gov.uk)

Ensure your estate is set up correctly

Not necessarily one of the areas that will help to grow your funds or ensure longevity throughout your own retirement, but a significant planning area for individuals is ensuring that your funds are passed to who you wish if anything were to happen to you. An up to date will can be one of the most overlooked areas of financial planning but arguably one of the most important. If you were to die without a will, your estate is distributed according to the laws of intestacy which state that funds are passed to specific people depending on your family setup, even passing to the state under certain conditions. Similar to your will, an expression of wishes states who you wish your pension funds to be passed to on death, as these sit outside of your estate so are not considered in probate valuations and wills.

The health and welfare LPA enables your attorney to make decisions on your behalf when you are unable to in relation to your choices in areas such as life-sustaining medical treatment and general medical care. It only comes into effect once you have lost mental capacity. [5] My colleague, Alex Pugh, has written an excellent article on the topic in more detail here – The fifth pillar of financial well being | Saltus.

Final thoughts

Retirement looks so different to everyone, there is no ‘one size fits all’ or ‘cookie cutter’ solution that meets every individual’s circumstances, but many face the same concerns and decisions at a similar time in their life. The earlier you can think about what you want from retirement, the more likely we are able to put a plan together to achieve this as a financial planner.