The Big Retirement Picture - Introduction

As people start to age, they generally have a lot of questions about their retirement. What are the tax implications? How much can I get from my pension pot? What are the rules around investment and paying into my pension fund? What is my big retirement picture?

You will have a better idea of how much money you will have in retirement with this blog.

The guide will give you a better idea of how to figure out how much money you will need to have in retirement. You can use the guide to make decisions about your pension and plan for your retirement.

How much you can get from your pension pot

If you are lucky enough to have a workplace pension, then it's likely that the amount you can get from your pot will depend on how much you have saved, how old you are, what type of plan it is and when you started saving.

Older style pensions will offer an annuity on retirement – meaning an amount of money you will receive until you die.  Some older plans were very generous – those falling under a ‘final salary’ arrangement for example.  But with many if you die soon after retirement then you would receive much less than a colleague on the same scheme who lived another 20 or 30 years.  Also, although some final salary schemes had provision for a widow or widower to continue to receive your pension, most were at a substantially reduced amount.

The pensions freedom legislation 2015 - what was it? It means that pension holders now have the flexibility to use their pension money in a variety of ways.  One big advantage is that money can form part of their inheritance planning.  Whether that is right for you – needs specialist advice, but it is worth considering.

And so is pension combining.

What is pension combining and why do it?

Pension combining is (in some cases) finding old pensions – jobs you may have done for a couple of years, where you forgot they even put you in their pension scheme, and bringing them together into 1 pot.

There are several good reasons why you might consider merging some or all of your pensions into one pot:

1. Easier to manage and less admin

Nobody likes paperwork, and if your pension savings are in one place, there will be less paperwork.  And you’ll be able to see how your pension is performing.  It will also be easier to add more money in!

2. One pension payment

When you do retire if you take an annuity – then you will just receive one payment on a single pre-determined day – much easier for budgeting.

3. Streamline or reduce pension charges

A single pension pot could mean you’ll pay less in charges, as several smaller pots may well be adding up to more charges overall.

4. Your Choice

If you have several pension pots they may not all be invested where you would want them to be.  Having the pension pot in one place and under your control means you can invest in funds / industries that matter to you.

5. Flexibility

You can choose when you retire, IF you retire, to take an annuity or just to take money when you need it.  And who gets the money when you die.  Your retirement picture, your choice, your way!

NB – pension combining may or may not be the right choice for you – take independent financial advice before changing your current pension arrangements.

What you need to think about before you retire

When you retire, the amount of money you have available to spend will depend on the income you have coming in and the number of years until your retirement. To make sure you have enough money, it's important to plan ahead.

The goal here is simple: protect your income so that it's there when you need it, so that the retirement picture in your head becomes reality. You may not know exactly how much income will be needed every month, but using a retirement calculator is a great place to start planning for that future retirement picture and adjusting accordingly.

Retirement calculators allow users to enter their current age, expected future retirement date and salary information such as annual salary increase rate or percentage growth rate overtime until they retire (or until they reach their desired retirement age).

A good calculator will also allow users to select an option for continued employment after reaching their desired retirement age; if this option is selected then these programs calculate how long they expect them live beyond their planned retirement date while still working full-time at their current job—and then project what kind of financial impact those working years would have on their overall portfolio balance after retiring completely from full-time employment

Budgeting for retirement

Once you know how much you need to spend, the next step is figuring out how much money you have. This will help you make sure that your retirement budget is realistic and achievable:

• Retirement income: If you have a state pension or other pension scheme, then this will provide an income for when you retire. How much this will be depends on how long ago your were born, but it’s currently only around £9,600 a year, which is not enough for most people to live comfortably and is below the national minimum wage.
• Current savings: This includes savings in banks and building societies as well as investments such as shares or property.

Your pension, tax relief, and contributions

The government offers tax relief on your pension contributions.  So you get to keep more of what you put in. They also have a free pension pot calculator here. This estimates how much money you can expect to receive when you retire from the state. And how long it will last for.

As mentioned, there’s now is also the option for people over 55 years old to withdraw their pensions as and when they like, without the need for an annuity—it’s called the Pension freedoms.  NB this is increasing to age 57 in 2028.

Lifestyle choices and your retirement picture

• Choose a place to live. Do you want to live where you live now, or move to the country or another country? Same size home or downsizing?  The climate and location can affect your retirement savings, so make sure you research different options before deciding on your ideal location.
• Choose a job. If you're able to continue working during retirement, it will help contribute towards your income and keep you engaged with others in your community. But be careful not to work more than is healthy for either yourself or those around you; sometimes it's better for everyone involved if retirees take their foot off the gas pedal after years of hard work!
• Choose a hobby. It's important for retirees not only to have an engaging job but also something they enjoy doing on their own time as well—whether that means gardening or reading or both! You may even find that certain hobbies lead into new careers post-retirement...whatever happens though, try not get stuck in ruts: having enough hobbies means never having too much time without fun things happening on any given day!

More information about retirement

The pension freedoms give you the freedom to make your own decisions about what you do with the money in your pension pot.

• You can take a lump sum, which is all of it or part of it.
• You can withdraw money from your pension pot as and when you want.  Up to 25% of its value will be tax free if you’re over 55. This is called flexible drawdown.
• You can take regular income from your fund as and when you want, over age 55 (currently).

Conclusion

We hope this blog has given you a better understanding of the factors that will affect your retirement income, and ultimately your retirement picture. We also hope it has helped to dispel some of the myths around pensions and retirement.  It doesn’t have to be complicated! If you have any questions about anything related to pensions or other financial matters, please get in touch with us here chris@macfinancial.co.uk

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