As the government continues to increase the state pension age and life expectancy continues to rise, clients need to be encouraged to give some serious thought about the age at which they would like to retire.
When I speak to my clients, I explain that if they plan for retirement early, they can retire when they hope to – if they don’t, however, the question is when can they? With planning, the decision lies very much within their own control; without it, the decision is no longer their own.
The age we are entitled to receive retirement benefit continues to increase and this is down to a number of factors – namely the cost of providing the benefit, and the fact we are all living so much longer than before.
At present, the state pension will start at 67, but it wasn’t so long ago that it was 60 for women. So, if a client does not want to retire at 67 and have the minimum to live on – the current flat rate state pension is £155.65 – then they need to make some provision. And the earlier they start, the better.
To help them plan for retirement, I ask my clients to consider when they would like to retire. It is important to think about how much money – in today’s terms, that is – they would like or need in retirement to live comfortably. At this stage, factors to consider would include the fact their children may no longer be dependant, mortgages might be paid off and they may only need the use of one car.
Once they have this figure in mind, think about how this income will be produced when they are no longer working. Clearly the amount can come from various outlets, such as savings, rental properties, pensions and so on.
When planning for their retirement income, clients should no longer be thinking solely about the use of pensions. While they do offer great advantages and obviously provide one of the building blocks for retirement planning, the key is to ensure they also have alternative provision. A decent initial checklist for clients would thus include:
* Be sure to make pension contributions: Remind clients that, for every £80 invested for a basic rate taxpayer, another £20 will be added in tax relief from the government.
* Take advantage of the new auto-enrolment pensions provided by their employer if they do not have a company pension already.
* Try and save into an ISA regularly: If they are saving for more than five years, consider an investment ISA.
* Try to plan it so that all debts and liabilities will be paid off by the chosen retirement date.
* If they need a retirement plan and need to know how much to contribute into their savings, then their financial planner – your good self – will be able to produce a cashflow forecast for them. This will indicate the cost of their retirement plan and whether it is achievable or if they need to make slight adjustments to their expectations.
Most importantly, clients need to be in no doubt that, the sooner they start planning, the more likely it is they will achieve their goals.
After all, if they do not have any sources to provide the income they would like in retirement, then ultimately the important question is not going to be ‘when do I want to retire’ but ‘when can I’?
Peter Savage is a Chartered Financial Planner with Fairstone Financial Management NI