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Are your retirement plans changing?

Many people are now considering whether it is affordable to bring forward their retirement plans or whether they might like to wind down earlier.

| 5 min read

Are your retirement plans changing?

What are you looking forward to doing again when this lockdown is over? I am looking forward to getting back to face-to-face meetings with colleagues and clients. I have heard from one client who is definitely no longer putting off the purchase of a new campervan and travelling more.

Retirement is, of course, a moveable feast. It can also be gradual, reducing hours rather than ceasing work completely and I suspect many people are now considering whether it is affordable to bring forward their retirement plans or whether they might like to wind down earlier.

For others, sadly, the harsh reality is that retirement dates may have to be pushed back as the world recovers from the economic consequences brought about by the pandemic. There may be many more financial planning questions in the coming months. The best way we can address these is to start to develop plans now so that we are ready when the restrictions start to ease.

Planning retirement

For example, the use of cash flow modelling can dramatically alter the way we see our financial future. In real-time, they can demonstrate our realistic retirement goals, investment return rates required to meet these goals and any shortfall we need to make up. Cashflow modelling can also make clear whether you’re able to bring retirement forward, as well as any compromises you might have to make, if any, while providing peace of mind your plans for the future will be met.

Some of the other measures you could be taking in order to give you the best chance of the retirement you desire are;

  1. Consolidation of your wealth and a greater understanding of where you are now.
  2. Ensure you know where all your pensions are that you have accumulated over your working life and how much they are worth. Consider getting a qualified financial adviser to review them and their underlying investment to ensure they remain suitable.
  3. Make use of ISA allowances and pension contributions in the years approaching retirement and choose the best investments for your circumstances.
  4. Take advice on how to structure your finances in line with your objectives using cashflow modelling. This will highlight whether your plans are on track or if any changes need to be made.
  5. Consider what to do with the family home. Will you be downsizing? Consider the choices you have and build them into your financial plan.
  6. Calculate whether your estate is going to be taxed on your death. Estate planning involves structuring your wealth in the best way possible to reduce any potential Inheritance Tax costs.
  7. If you own your own business, consider your succession plans. Are you selling it or passing it on to remaining shareholders or other members of your family? Will it provide you with an income or capital lump sum?

Income in retirement

Once your financial plan is in place and you are approaching retirement you must consider the best way to structure your income in the most tax-efficient manner possible. If all your income needs will be met from a final salary, defined benefit pension, your choices are limited as this is a secure income, taxed at source under income tax.

If you have pension income from a personal pension (defined contribution), rental income or bank savings interest, they will be taxed in the same way under income tax. You may also be receiving dividends from shares, which are taxed in a similar way.

If you are taking income from your personal pension or Self Invested Personal Pension (SIPP), you may not be achieving the most tax-efficient outcome and it might be worth speaking to a financial adviser. You do not have to use your personal pension for income in retirement. There are other ways to generate income whilst at the same time making use of all annual exemptions and therefore paying less tax.

There are often a number of options that many people don’t consider. One annual exemption which most do not use is the Capital Gains Annual Exemption (£12,300 per person). You can realise profits on an asset (investment or otherwise) up to £12,300 without paying any capital gains tax in every tax year, per person. Some specialist types of trusts can also pay an income in addition to the inheritance tax advantage and they can be worth exploring.

Planning retirement and tax-efficient income when retired does not have to be complicated. With some forward-thinking and financial planning, you can look forward to an enjoyable retirement knowing you have all your finances in place, working tax efficiently and providing everything you need.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Are your retirement plans changing?

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The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. The tax treatment of pensions depends on individual circumstances and is subject to change in future. This article is solely for information purposes and does not constitute advice or a personal recommendation.

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