Why it’s never too early to plan for retirement (but it can be too late…)
There’s no getting around it: retirement’s a pretty big deal. But despite its quite literally life-changing magnitude, it’s something that many of us leave to the last minute to plan for.
It’s the classic “I’ll get round to it soon” approach. But, as many of us will know, ‘someday’ can all too easily become ‘next year’ — and before you know it, it’s too late.
Because when you consider that 43% of the public don’t know how much they’ll need to retire comfortably, and 31% don’t have a pension at all, it’s clear that many of us could do with getting their house in order. It’s never too early, but it might be too late.
When do you want to retire? And when can you?
Setting out your retirement expectations and taking a look at your financial fitness will help you work out if there’s a gap between when you want to retire, and when you actually can.
Start by thinking about the lifestyle you want to lead. Will you have paid off your mortgage? Do you expect to be enjoying your time off with frequent holidays and eating out? Try and work out the amount you expect to be spending each month.
Then think about when you’d like to retire. There are a few handy tools out there, like Aviva’s, which use a few assumptions to work out whether you’re on track to retire when you want, in the way you want.
By working out sooner rather than later if there’s a mismatch between your current pension pot and your ideal retirement, you can start to think about out how much more you might want to be setting aside each month in order to reach your retirement goal.
Those who turn a blind eye could end up with much less in their back pocket than they thought. And that goal of retiring at 60 could quickly become 65, then 68, then 70…
By the same token, flying blind when it comes to how much you’re contributing to your pension each year could also land you in some hot water – this time with the taxman. If you’re exceeding your annual or lifetime allowances, you could face a hefty tax charge from HMRC that’ll only serve to dent your retirement lifestyle.
Delaying could cost you thousands
As calculated in our financial advice guide, if you could get by on £10,000 a year during your retirement, starting to save at 35 means you’d have to contribute £4,300 to your pension every year until retirement. But if you start at 50? You’re looking at £13,000 each year. That’s not taking into consideration the cost of inflation — the true figure is likely to be much more.
Every year you delay your pension planning means some extra catching up to do later down the line – at precisely the time when you might have even more outgoings thanks to a growing family or a sizeable mortgage. Future you won’t be thanking present you for your lack of forward planning…
And remember...retiring isn’t always a choice
We might think of retirement as a later-life milestone – but sometimes, the choice of when we retire is taken out of our hands.
Whether it’s due to poor health, a change in family circumstances, or an unexpected redundancy, there are a number of reasons why someone might find themselves hanging up their boots earlier than anticipated.
Inadequate planning for unexpected circumstances can lead to some pretty far reaching consequences. After all, trying to support a family or pay off a mortgage can be incredibly difficult if you’re relying on the state pension alone (currently £8,767 annually).
When you consider that the timing of our retirement might not be left to choice, early planning becomes all the more important.
So, how do you get started?
First thing’s first — check if you’re already on a pension scheme.
The good news for anyone currently working is that as of 1 October 2012, automatic enrolment has been phased in across UK workplaces, and from 1 February 2018, every employer with at least one employee is now legally obliged to enrol all eligible members of staff into a workplace pension scheme.
Automatic enrolment applies to anyone working in the UK aged between 22 and the State Pension age, who earns at least £10,000 a year.
But for those who have been working a little longer, you might have opted into a pension scheme years ago and not given it much thought since. It’s important to dig out the details of your plan to see just how much you’ve been accumulating, and to check if any legislation changes over the years have affected your situation.
If you’ve changed jobs, you’ll also have to track down all of the old pension schemes you might have been contributing to throughout your career. Because although you’ve moved on, any previous pension pots will lie dormant until you reach State Pension age.
The average UK worker will have had 11 jobs throughout their entire career, which could mean just as many pensions to track down. It’s also estimated that £400 million is currently sitting in unclaimed pension savings, so it’s definitely worth checking your pension history and if you’ve made contributions in the past.
There’s no time like the present
Your retirement should be an enjoyable prospect, not a daunting one. And it can be.
With the right guidance from a skilled financial adviser, you’ll be able to put in place a long-term retirement plan that can help put you on track for the later life you want — without you doing the heavy lifting.
But in order to maximize the benefits you’ll receive when you finally retire, it’s key that you act now. When it comes to pension planning, there really is no time like the present.
Not convinced? Find out more in our retirement guide.