We are often faced with the question “How much money do I need to retire?”. The answer to this depends on your individual circumstances and what your income needs are in retirement. As a general guide, you need 20-25 times your retirement expenses. So if you wanted your pension to provide you with £20,000 per annum, you’ll need a pension pot of between £400,000 - £500,000.
This may sound obvious; however, many of us think that we must retire at a date set by our pension provider, or indeed the government via your State Pension age. This is not the case as you can usually take money out of your pension at any time from the age of 55 (the government is proposing to increase this to age 57 from 2028).
What do I need to have in place?
Whenever you plan to retire, it is essential to create a strategy. A financial adviser can help you set and work towards a target retirement age by reviewing your personal situation.
A key consideration is to establish when your State Pension age is. It is a useful exercise to apply for a State Pension forecast before you start to consider your retirement planning. You can do this by visiting: gov.uk/statepension.
It is also worth noting that you can, in most cases, continue to work and draw pension benefits. This may work for you, if you want to reduce your working hours, or switch to a part-time position. It may also be possible to continue to be a member of your workplace pension, and continue to benefit from tax-relief, and employer contributions.
Informing the right people
Many people believe that they will receive their State Pension automatically. However, it needs to be claimed manually and should be done no later than two months before you reach State Pension age. The quickest way to claim is online and it can be done here.
A lot of workplace pension schemes will include an element of ‘lifestyling’. This is the process of the funds in your pension de-risking as you approach retirement age. It is therefore important that your pension provider is kept up to date of your planned retirement age. This will also trigger the time at which they will send you the paperwork for you to start taking benefits from your pension.
Consolidating my pensions
Pension consolidation simply means bringing together multiple pension schemes. Workers now average a total of 11 jobs during their working lives, so it's not uncommon to have built up several pension schemes.
It can be easy to lose track of pensions and so the Government have set up a service to assist tracking lost pensions, find out more on this here.
Consolidation can give you access to additional retirement and death benefit options which may not be available within your current scheme. These additional options can assist to create a tax efficient retirement plan and also help with wealth transfer planning.
It is important to note that some pensions have valuable guarantees and other benefits that would be lost on transfer and so a consolidation exercise may not be in your best interests. If you are unsure, it is important to seek financial advice.
Planning for retirement
There is a lot to consider when planning your retirement, and this article only provides some of the context. Working out your budgetary requirements and understanding the various pension income options can be overwhelming, especially if you have a multitude of pensions from various employment, with different providers. These are life changing decisions, and one that should be considered carefully, and discussed with an independent financial adviser, who can assist you in navigating your retirement journey.