Seven Things to Take Into Account When Deciding Right Time to Retire
The retirement decision is not just about taking the plunge because you can afford to do so; rather, there are other things to think about, such as a person’s (and a partner’s) health; what they want to do; and then, what income do they need?
Then it must be determined where the money will be from with which to achieve retirement goals. Is it from their pension, or might it be from other vehicles like investments and money saved?
Here are some suggestions from WEALTH at work, which provides financial education, as well as suggestions and recommendations for the workplace. Taken from their student interactions, WEALTH at work discusses concerns as well as suggestions posited in terms of their retirements.
As might be expected, many do not realize that they will likely need the same income as they did when employed. On the other hand, this may not be as daunting as it appears, as some will have financially independent children; pay much less in taxes; have no pension deposits to make; have no National Insurance (NI) contributions; and will have paid off loans and mortgages. This could afford people to retain the same income amounts as they had during the working years, even though their pension is reduced by ½ of their past salary.
How about early retirement? Some individuals want to retire early to do the things they have thought about and to do so when they are still of optimal health, says WEALTH, but don’t see how without proceeds from their state pension. According to WEALTH, retirement patterns generally follow a “U-shape” in retirement, as the first years tend to be the highest in cost.
With the “U-shape” concept, it appears that spending lessens in the so-called ‘passive’ phase. Activity eases up. However, when the “supported phase” comes into play, extra needs toward care come up and that costs more.
Provided there is long term planning in place, it could work to use the pension lump sum portion that is tax-free for income.
WEALTH educators say some do not know that they can maximise pension deposits during their last few employed years. This might be accomplished by living off of taxable proceeds such as investments and savings and using a paycheck to add to pension benefits.
A lowering tax rate might be of benefit in retirement as well as could a tax bonus when that paycheck-into-pension money strategy could trigger a bonus.
Some are concerned about the “single tier” state pension being implemented. This depends upon whether or not there are at least 5 years of National Insurance deposits. In that circumstance, the pension can be no fewer than £159.55 along with a deduction for workers who went out on contract from the Additional State Pension. WEALTH advises checking both the NI contribution information as well as State Pension records prior to making decisions. Again, according to WEALTH, you can obtain a State Pension recap by using a using a BR19 form, either online or by calling the government’s help line at 0345 3000 168.