It is never too late to start planning for retirement. Of course, the earlier you set up a retirement plan, the better prepared you will be. This month we look at the 5 steps to take in preparing for that day when you can stop working. No matter what stage of life you are at, it is worth putting plans in place now. While this month’s focus is on the key considerations early on in your career, we can help at any time – perhaps try our article on the planning steps to take when close to retirement. You can also talk to one of our independent financial advisers at www.plutuswealth.com for a tailored assessment.
Step 1: State Pension
National Insurance contributions go towards your State Pension, so it is important to check that you are not underpaying. If you are employed, you will be paying National Insurance contributions through your employer. If you are self-employed, those contributions are calculated as part of your self-assessment tax return.
You will need a certain amount of qualifying years of National Insurance contributions to claim your State Pension. Currently, that is 10 years of qualifying contributions for the minimum State Pension. The ultimate amount you can claim will depend on how much you have paid in. The current requirement for a full State Pension is 35 years.
You can check that you are paying enough by reviewing your State Pension forecast. If you find that there are gaps in your National Insurance contributions, you can top up. If that is the case, speak with your independent financial adviser who can help with the next steps.
Step 2: Workplace or private pension
If you are employed, your employer will have automatically enrolled you into the company’s pension scheme; it is now a legal requirement. While you can opt out of this, it is something to consider very carefully, and ideally discuss with an independent financial adviser.
By remaining enrolled in such schemes and paying into them, your employer is required to contribute as well. On top of that, the government offers tax relief, paying that directly into the pension pot. Effectively, this is free money for you. The catch is that you cannot access it until you retire, but without being enrolled that money is not available to you.
If you are self-employed, you may not have access to employer contributions. However, you still benefit from the government’s tax relief if you set up a private pension. Setting up a retirement plan is even more important if you are self-employed and have no access to contributions from an employer.
In either situation, keep an eye on how your pension pot is doing and make additional payments where possible. Any extra money going in will still qualify for tax relief – that is further additional money going into that pot over time.
Step 3: Review pension pots regularly
Most people will work for more than one employer during their career. This means that you could end up with multiple workplace pensions.
On leaving a company, while that pension remains in place, it is no longer actively managed on your behalf. Over time, this could result in a smaller pot as markets rise and fall and investment options change. It is worth seeking advice from an independent financial adviser who can review the status of frozen pension pots. They are bound by the Financial Conduct Authority to put protection of your assets over their own profits or income, so they will only advise you to make changes if they are likely to be beneficial to you.
It may be that over time you choose to consolidate older pension pots into a managed scheme. This will ensure that your money is being actively looked after and that you can make decisions on what to invest in and how to manage your money to help it grow.
Step 4: Pay off debt where possible
When the time comes to retire, you want to be free of debt as far as possible. You want to avoid having large debts remaining that will have to be paid off out of your pension income since that income will be lower than your salary.
It is important to put plans into place to pay off any debts over your working life. This could be anything from student loans, credit cards or a mortgage. This is another area where getting advice from an independent financial adviser could be invaluable. They can help you identify which debts to target first and set up plans to clear them as quickly as possible. This can also reduce the additional cost incurred as interest rates add to your debt.
Step 5: Review your finances regularly
Ensuring you have enough money to retire is not just about saving into a pension pot. Debt, daily expenditure and what you plan to do in retirement will all play a part in how much money you ultimately have and how you build that up over time.
Seek advice from an independent financial adviser regularly. This could be at key career or life milestones – for example, if you change jobs, get married, divorced or have children, or take out a mortgage. It could be when you first start working, to help you set yourself up in the best way possible for the future. Alternatively, it could be as you begin to think about retiring.
As with setting up a retirement plan, it is never too late to talk to an expert who can guide you to make the right decisions for you and your family. It is also true that the earlier you do so, the more you can benefit from it.
For advice, guidance and impartial help on retirement planning or any other financial planning, Plutus Wealth can help. Call us on 020 7871 5200 or email us at info@plutuswealth.com to set up an appointment or to take advantage of our free initial consultation.
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