Perhaps you have always dreamed of buying a boat when you retire. But have you considered how you might pay for the boat. Will you pay in cash or finance it? Will you buy a used boat or a new boat? How big a boat will you buy or want? How big a boat can you afford? It gets a little complicated when you start to think about it doesn’t’ it???
Retirement planning is a bit like that too. There are lots of factors to consider and the time to consider them is now when you can put arrangements in place so that you can buy the kind of boat you want in retirement. Or home. Or car. Well, you get the idea.
You might be very lucky to have a final salary scheme and have no concerns in this regard. Since there are not many of those around any more you might have to look further.
But what if you are self-employed? Have you been utilising your allowances to make the most of your pension pot? Perhaps you have several pension funds from different jobs over the years, have you thought about how much they are in total and if they are able to provide you with the income you will want or need in retirement. Planning ahead can help.
A good retirement plan begins with an assessment of current plans. Knowing the total and where the funds are invested helps your adviser to forecast what that pension pot might be worth at retirement. Then a good indication of what you can take as income from the pension pot can be predicted and how best to invest those funds going forward to achieve your retirement goals.
How big is the boat
The income you feel you will need in retirement is the linchpin on the whole planning process. Some people may decide to scale down their lifestyle, including foregoing a second car, downsizing their property and travelling less. An increased level of travelling is also common, so some retirees may want more income to go on those trips of a lifetime that they postponed during working their working life. The level of income you need will often change going forward through the retirement plan – these changes of income can all be factored into the retirement plan.
How often will you use the boat
Many pension arrangements offer a tax free lump sum at retirement. Brilliant for some but it’s not mandatory to take it all at commencement. You can step the way you take benefits so as not to take all the tax free cash at once. How often you will need access to your retirement income is important. Pension drawdown allows you to take your pension income flexibly but limits the yearly income so that the fund cannot be depleted
How secure is the boat
Also to consider is the security factor. Buying an annuity is a super way to secure income for a length of time or for the rest of your life. If you are risk averse, this might be the right choice for you. As there is no investment risk – you may lose out if markets are buoyant however, losing the chance potential portfolio growth.
Happy sailing.
Contributions By: Kathleen Keyte, Expert Wealth Management, Paraplanner. Providing retirement planning advice in Witney, Oxford and Abingdon in Oxfordshire. Chartered Financial Planners.
The contents of this document do not constitute advice and should not be taken as a recommendation to purchase or invest in any financial product. The value of a market investment can go down as well as up and you may not get back the full amount, particularly in the short term. Before taking any decisions, we suggest you seek advice from a chartered financial planner.