Investing Basics: Getting ready and retirement planning

Making your money last through all of retirement can seem like a daunting task, but careful planning and understanding of retirement spending patterns can make it easier.

Since the widespread changes to pension legislation in April 2015, the onus has been on individuals both to ensure that they’ve saved enough to live comfortably once they stop work, and to plan so that the amount that they have saved lasts through their lives.

We no longer have to buy an annuity with our pension savings, whether they are in a SIPP or an employer pension. Instead we can choose to manage pension income ourselves, taking the money all at once or as and when it’s needed.

‘the new pension freedoms are a more efficient way to use your hard-earned savings without much risk of the cash running out’

Many experts have voiced concerns that the pension changes would lead to retirees splashing all the cash at once and living in penury for the remainder of their life, but research shows that the new pension freedoms are a more efficient way to use your hard-earned savings without much risk of the cash running out.

This makes it even more important that you plan carefully to ensure that you get the very best out of what you’ve saved.

This makes it even more important that you plan carefully to ensure that you get the very best out of what you’ve saved.
 
 

Advance planning for your retirement
 
 

The most recent figures about how people take their pensions suggest that pension freedoms have taken off in a big way.

Twice as many people use pension drawdown as use annuities, which provide a fixed income for life, with the Financial Conduct Authority describing withdrawing income from pension pots as “the new norm”.

Careful forward planning and preparation are the keys to making the most of your savings in retirement. Since the new flexibilities were introduced, tools such as the Equiniti RetireMe app have been developed to help with this planning.

‘Careful forward planning and preparation are the keys to making the most of your savings in retirement’

The app allows you to model how you could use your fund throughout retirement, either by showing how much you could draw down if you wanted it to last for a set period of time, or by showing how long your fund would last if you drew down a certain amount from it each month.

Surveys routinely show that most of us underestimate how long we are going to live and the most recent life expectancy statistics for England Updated projections from the Institute and Faculty of Actuaries suggest that men aged 65 will now live another 22.2 years. Women aged 65 will now live for a further 24.1 years, down from 25.1 years in 2013.

That’s a long time to make your money last, but you may not need the same amount for every year throughout retirement. Numerous studies have shown that spending falls in later retirement, compared with the earlier years, with the exception of money spent on long-term care.

This can partly be due to the fact younger retired people might spend more on leisure activities whereas older people may be more constrained by issues such as ill health, for example, and spend less on leisure.

‘Spending declines gradually from the age of 50’

Spending declines gradually from the age of 50 Research from the ILC suggests that spending declines gradually from the age of 50.

“People may need a combination of flexibility and security of income in retirement to support higher consumption earlier on while ensuring people are still able to afford their regular bills in later life,” Ben Franklin, Head of Economics of Ageing at ILC-UK, says.

Talking to a financial adviser or other expert at the point of retirement, as well as planning out how much cash you might need and why, can be a sensible investment.

The government has introduced a tax free allowance of £1,500,that can be taken in three £500 chunks, which those approaching retirement can take from their pensions to spend on advice. This emphasizes how important it is to make the right decisions at this point.

‘the better you plan, the more likely you are to be able to use your savings to have the retirement you want’

Important things to consider include your tax liabilities – if you take all of your money at once in particular, as well as any plans to pass on money to family members, and any other assets you are planning to use to help fund this period in your life. These could include ISAs and your home – whether you are planning to sell it or use equity release to help with care costs later on.

If you find that you do not have enough money to live the lifestyle you hoped to, early planning could help you to put away more, as well as ensure that any money you keep invested can keep working hard for you until you need to spend it. How much risk you are willing to take with your own retirement savings will depend on your risk appetite, circumstances and other assets.

In short, the better you plan, the more likely you are to be able to use your savings to have the retirement you want. Using tools like RetireMe realistically can help as well. After all, you’ve saved for it, so you will want the cash you’ve got to work as hard as possible