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Planning Your Finances Before Retirement

Retirement can be an exciting time for older workers, signifying the start of a new chapter in their lives. On the other hand, however, the process can also be daunting. Preparing for a comfortable retirement requires years of hard work and planning. And, with record numbers of UK residents retiring each year now, it’s more important now than ever that workers take steps to plan for their later years. Even those who are relatively new to the professional sphere should make an effort to start thinking about their retirement savings as early as possible. Here are the steps that every worker should take to ensure that they’re able to enjoy a happy and healthy retirement.

Make a Plan

In any venture, the first step is most often to sit down and lay out a plan. Creating a concrete retirement plan gives you a financial framework to build off of when saving. Your income will determine how much you’ll be able to put away each month leading up to retirement, while pensions and annuities after retirement determine how much disposable cash you’ll have to spend. Retirees should also consider assets such as property when determining retirement funds.

Estimates of income after retirement shouldn’t include investments, as this isn’t guaranteed cash flow. Though it’s a good idea to invest in retirement, the value of most stocks and bonds is subject to fluctuation. Those who count on returns from investments to fund their lifestyle too often find themselves short on funds each month.

Once you’ve determined your financial prospects post-retirement, you can set up a budget. This will ensure that you’re able to live well within your means and avoid overspending that could lead to financial ruin later on. When setting up a budget, it’s also crucial that you account for an inflation rate of around 2% to 3% per year. It may be a good idea to hire a financial planner for this step, as they’re able to give expert financial advice tailored to your unique situation.

Start Saving Early

It’s best to start saving for retirement as early as possible to give yourself a healthy nest egg with which to work. Starting a savings account earlier rather than later means that you won’t have to sacrifice a significant chunk of your paycheck, leaving you with more disposable income in your younger years. You’ll also accumulate more in interest. Just ensure that funds are placed in their own separate bank account so that they remain safe and untouched.

UK residents should also start paying into their pension at a young age for the best returns in retirement. Pensions contributions aren’t taxed, making them a more effective way to save than simply funnelling cash into a bank account. By paying into a monthly pension plan, workers can ensure that they’ll have some sort of monthly income coming their way after retirement. There are three types of pensions for working adults, including:

  • State Pensions: Those who have made National Insurance (NI) contributions throughout their career are eligible to claim a state pension at retirement age.
  • Workplace Pensions: Many workers supplement their state pension with a workplace pension provided by their employer.
  • Personal Pensions: If their employer doesn’t offer a pension plan, UK workers can take out a pension plan with a private provider of their choosing.

Pay off Debts

Though it may seem obvious, many workers fail to pay off debts before retirement, meaning that a portion of their fixed monthly income must go to collections payments. Before starting any sort of savings account, adults should take steps to pay off their debts in full. This includes medical bills, credit cards, housing, and more. Those who are having trouble whittling down on their debt can set up a Debt Management Plan, wherein their creditors agree to accept smaller payments each month, or they can apply for a Debt Relief Order or Bankruptcy Order.

Look into Benefits Programs

Retirees who are worried about the state of their savings account may be able to turn to government benefits for financial assistance. Eligibility is not only based on age, but also income, assets, and financial situation. There are a number of programs designed to help lower-income retirees to supplement their savings, including:

  • Heating Benefits
  • Public Transportation Concessions
  • Housing Benefit
  • TV License Concessions
  • Council Tax Support
  • Employment and Support Allowance
  • Income Support
  • Pension and Universal Credit
  • Personal Independence Payment
  • Jobseeker’s Allowance
  • Health Benefits
  • Disability Living Allowance

Find Part-Time Work

It’s important to remember that even with proper planning, it’s impossible to foresee the future. Many retirees find themselves with greater expenses than they expected, especially those who experience health issues in their later years. While cutting back and living more frugally is always an option to stretch funds, it’s often not the easiest or the healthiest choice for older adults.

Instead, many retirees choose to go back to work, either as a part-time employee or a consultant. Not all retirees opt to take a traditional position, however. There are also plenty who are starting their own business. In the age of the Internet, it’s easier than ever for older workers to set up their own business from the comfort of their living room.

Finding part-time or consulting work after retirement doesn’t necessarily have to be a financially-driven decision. Even some retirees who have a healthy savings account prefer to continue working well into their senior years. In fact, almost half a million UK people over the age of 65 choose to continue working past retirement age simply because they enjoy it. Staying active on the job helps to keep the body fit and the mind sharp, staving off age-related mental and physical decline. Having a job also gives retirees plenty of opportunities to get out of the house and socialise, which is often a challenge for those living alone.

Preparing for retirement is no small feat. It can be especially challenging from a financial perspective. By coming up with a solid savings plan, however, UK seniors can make sure that they’ll have a healthy income come retirement age.

About the author

Chase Rimmer

Chase is an expert in finance and uses his expertise and understanding of links between different financial products and life stages to analyze the latest finance news and products. When he's not writing you can find him in first class using his credit card points. Or staying at home with his cat if he's not saved enough yet!

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