In a gymnastics competition, judges award points based on how well the athletes execute their chosen routine. The gymnast plans the specific moves, and the judges determine their score based on how effectively they display them.
However, it’s equally important that they end the routine in the right way because they may receive severe penalties for stumbling or landing with incorrect form. As such, even if they perfectly execute the routine, a poor landing could mean losing the competition.
Retirement planning is very similar. You might have a robust financial plan that you follow to the letter, meaning you meet all your savings goals. Yet, this is only part of the story.
Once you build your savings and come to retire, it’s crucial that you stick the landing. In other words, you need to draw from your savings in a sustainable way so you can maintain your desired lifestyle.
Unfortunately, if you stumble or fall at this stage, you could undo a lot of your hard work, just like a gymnast messing up their landing. That’s why retirement planning doesn’t stop when you retire.
Read on to learn some of the key retirement planning considerations in later life.
Reassess your goals and financial needs when you retire
When you create your financial plan, you typically start by setting goals and considering your financial needs.
You will likely consider what you want your lifestyle to look like and then calculate what level of income you need to achieve this.
When you retire, it may be useful to reassess these goals and financial needs for several reasons.
Firstly, your priorities could well change throughout your life. Perhaps you have grandchildren and would like to spend less time travelling and more time with family. Alternatively, you may decide that you would like to move house or purchase a holiday home, for example.
Secondly, the cost of maintaining your chosen lifestyle could be different from your initial predictions. Indeed, we are currently experiencing a period of high inflation which you may not have accounted for.
Additionally, your predictions about investment performance are unlikely to be completely accurate. As such, you may need to reassess your goals and your financial needs to give you a more up-to-date picture of your current situation.
Working with a financial planner may be beneficial here. We can use cashflow forecasting to help you determine how far your retirement savings are likely to stretch based on your current goals and lifestyle preferences.
Divide your assets into short, medium, and long term and match them with your goals
Now that you have a better idea of what your lifestyle is likely to cost, you can consider the assets you have available to pay for it.
These assets likely include:
- Pensions
- Cash savings
- Investments
- Property
When you reach retirement, it may be useful to divide these assets into short-, medium-, and long-term groups. For instance, your cash savings may be a short-term asset that you use for travel or purchasing a new car, as well as general lifestyle costs.
Conversely, pensions and investments may fund your lifestyle in the medium to long term.
Property may also be considered a long-term asset as you may rely on it to fund certain expenses later in life, such as care costs.
By dividing your assets and matching them with specific goals, you may find it easier to draw from your savings sustainably and avoid overspending early in retirement.
Don’t forget to consider the tax implications
Finding ways to mitigate tax is often one of the most important aspects of retirement planning in later life.
If you fail to plan accordingly, you may lose a significant amount of your savings to tax. Unfortunately, this could be more likely in the near future.
Indeed, according to MoneyWeek, an additional 650,000 pensioners are likely to pay Income Tax for the first time in 2024 as a result of the upcoming State Pension increase.
As such, it could be useful to consider the income you draw from your pensions each year and how much Income Tax you are likely to pay.
If you can use savings in an ISA first and leave your pension untouched for longer, you may be able to reduce your tax bill. This is because funds in your ISA are not considered taxable income, while wealth that you draw from your pension is.
When you do start drawing from your pension, be aware of your tax bracket and consider how much you take each year. If you are realistic about what you need to spend and try to avoid taking more than this, you may be able to stop yourself from moving into a higher tax bracket.
Leaving your pension invested for longer could also mean that you see more growth.
There may be important tax implications to consider when drawing on other assets too. For example, if you sell shares outside of an ISA, you may have to pay Capital Gains Tax (CGT) on them if your profits exceed the Annual Exempt Amount of £6,000 in the 2023/24 tax year (falling to £3,000 in April 2024).
Additionally, you may pay tax on the interest from cash savings outside an ISA if it exceeds your Personal Savings Allowance.
The various taxes that could affect your retirement savings can be complicated and you may pay more than you need to if you do not plan accordingly. Fortunately, if you work with a financial planner, you may be able to mitigate taxes and retain more of your hard-earned savings.
Plan ahead for wealth transfer
Passing your wealth on to your loved ones when you die is likely an important part of your financial plan, but this may be more difficult as Inheritance Tax (IHT) receipts are on the rise.
According to Money Marketing, the government is on course to collect record amounts from IHT for the third year in a row in 2023/24.
The good news is, there are several ways you can potentially reduce IHT provided you plan ahead for wealth transfer. These include:
- Writing a clear will
- Lifetime gifting
- Using trusts.
When used in the right way, these strategies could help to mitigate a future IHT bill so your family can keep more of your wealth. However, IHT planning can be complex, so it may be beneficial to seek professional advice.
Get in touch
If you are close to retiring or you have already finished working, we can help you with your continued planning.
Please contact us at hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2023 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
The Financial Conduct Authority does not regulate cashflow planning.
