How to Prepare Financially for Retirement

Determine Ideal Retirement Lifestyle

If you don’t already know, it’s a good idea to start by envisioning what sort of things you’d like to be doing. Will you want to take lots of holidays? Or will you be more content pottering around the garden at home? Deciding on your dream retirement lifestyle will allow you to predict what your spending habits might be during your later years. Once you know how much you’ll need to spend in order to live the way you want, you have a financial goal to work towards.

It’s important to be aspirational but also to have realistic expectations. As well as this, you should try to allow wiggle room in case of unforeseen costs like healthcare in the event of an illness. Figure out your essential costs such as bills and groceries, then your desired non-essential costs, and add the two together. Defining the size of the retirement fund you need is vital in order to make sure you don’t outlast your savings.

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Decide How Best to Use Your Provisions

There are various options when it comes to your retirement provisions. Do you want a lump sum or a fund that stays invested from which you can take an income? From pension drawdown to annuities, there are lots of different ways to manage your retirement income.

How does Pension Drawdown Work? Pension Drawdown Explained >

Forecast Retirement Cash Flow

Forecast your retirement income in line with your ideal lifestyle and work out whether they are going to align. If not, you might need to make some adjustments. Make sure to consider all potential sources of income, not just pensions. Part-time work, returns from investments, rental income, and money from selling property are all going to contribute to your retirement finances.

A financial life planner can help you with this, using cutting edge software to create an accurate picture of your cash flow in later life. This step ensures there are no nasty surprises down the line, and helps you engineer the lifestyle you want. By doing this early, you’ll have time to make some changes or consider other finance options like equity release.

Cash Flow Planning with Hansford Bell >

Deal with Debts

In the years before you retire, it’s a good idea to deal with outstanding debts because retirement may pose a significant cut to your income. If you can, paying off your mortgage is a great idea too. You also might want to slightly curtail your current spending habits in line with your retirement budget so that the transition into the next stage of your life does not come as a shock.

Trace Old Pensions

Most people work more than one job in their lives, and as a result have more than one pension pot. If you’re not sure what pensions you have, you can use the government’s Pension Tracing Tool* to locate them. Once you’ve done this, you should consider combining them into one fund. However, before you do, double check you’re not going to lose valuable guarantees or benefits and won’t be faced with any hefty exit fees.

*Note – when you click this link you are leaving our regulated website for another for whose content we are not responsible.

Plan When and How to Retire

These days, more and more people are retiring gradually, or having a ‘semi-retirement’ before the real deal. Think about what would suit you better. Do you want to slowly reduce your hours or do you want a specific point to work towards? Knowing this means you have more of an idea of the amount of time your provisions need to last for, and what your window of time is to make changes.

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Invest in Line with Goals

As soon as you know the age you want to retire, you can create an investment strategy to grow your funds. It’s important to have an approximate age in mind before you do this because it will determine how risky your investments can be. For example, someone with decades until retirement is probably better off choosing riskier investments like stocks. That’s because these often outperform other options, but can be volatile. On the other hand, if retirement is on the horizon, you should focus on lower risk funds and the preservation of capital.

Don’t just invest in line with your goals; invest in line with your ethical beliefs too. Check out our ethical wealth management case study here!

Wealth Management with Hansford Bell >

Keep on Top of Estate and Tax Planning

Preparing for retirement is inevitably going to involve preparing for the end of your life too. By keeping on top of your estate and inheritance tax planning, you can ensure your loved ones don’t experience financial hardship in the event of your death, and maximise the value of the estate you can pass on. An approach chosen by some is to create a portfolio of investments generating returns that exceed living expenses in line with inflation, while preserving the capital to pass on.

In terms of inheritance tax, you might want to consider gifting assets in line with your annual allowance to reduce the size of your estate, setting up a trust, or a life insurance policy in trust. Planning for inheritance tax means the people who benefit most from your estate will be your loved ones, not the tax man!

A Beginner’s Guide to Inheritance Tax – Inheritance Tax FAQ >

Get Professional Advice

Effective retirement planning can be tricky, and it’s not something you want to get wrong! For that reason, it’s wise to work with a chartered financial planner. A financial planner will help you establish your goals and create a plan to work towards them. Choosing to get financial advice means you can retire with confidence, knowing a professional has worked everything out on your behalf. And, you won’t have to worry about monitoring investments and checking up on your portfolio; your planner will have it covered.