A recent report from Legal and General (L&G) has found that a whopping 94% of over-50s see financial stability for the rest of their life as their ultimate retirement dream.
Financial stability in this context means a stable income that allows retirees to live their desired lifestyle for the duration of their retirement.
For many, a dream retirement includes:
- Spending quality time with family (90%)
- Being able to afford care if required (81%)
- Financing major family events, like weddings (73%).
Expert financial advice, patience, and a keen focus on your long-term goals can make the dream of financial stability a reality.
Here’s why.
1. Building a financial plan forces you to think about what you really want
Long before your retirement date arrives, sitting down with a financial planner gives you the space to decide what your life after work will look like.
No one will hold you to the ideas you have at this point, but beginning to think about your retirement as early as possible is key. We can discuss how much this might cost and consider how your finances now will become the finances to see you through decades of retirement.
The L&G survey found that of the retirement activities that respondents were looking forward to, among the most popular were:
- World travel and holidays (52%)
- Enjoying existing hobbies (38%)
- DIY and home renovations (28%).
Each of these retirement dreams comes with different price tags. In turn, these price tags will help determine the answers to other important questions.
2. Once you know what you want, we can help build a plan to get you there
One of the most important questions your financial plan will try to answer is when you can afford to retire.
You’ll need to ask yourself:
- What retirement provisions do I have currently?
- How much will my dream retirement lifestyle cost?
- Do I have a shortfall and, if so, how will I make it up?
We use a simple fact find to discover your current financial provisions. We’ll take a holistic approach, looking not just at your current retirement plans but your other savings and investments too.
Back in March 2023, Which? surveyed more than 5,200 retirees about their spending habits. Analysts used the responses to update their retirement income targets.
Source: Which?
According to the latest figures, a couple will need retirement income of around £19,000 a year to cover household essentials, like rent or a mortgage, food, and utility bills.
Add in the occasional recreation or leisure activity, like meals out and short-haul holidays, and this required income jumps to £28,000.
A “luxury” retirement – defined as having enough money to cover all the above alongside more frequent leisure activities, long-haul flights, and a new car every five years – will require a combined income for a couple of £44,000 a year.
To achieve this level of financial stability, you might need to make changes in the present.
3. You might need to revisit your household budget, top-up your pension, or look to increase your tax-efficient investments
Revisit your household budget
If you think you might retire with a pension shortfall, the sooner you know about this the better.
Revisiting your household budget, especially when times are hard can help you to look for areas where savings can be made, or where your efforts might be better focused.
You could look to pay off high-interest debt like credit cards or overdrafts, for example, or use disposable cash to overpay your mortgage. The latter could lead to early repayment charges (ERCs) so be sure to check with us before you make this decision.
In the current high-inflation climate, cash is effectively losing value in real terms. For this reason, rebalancing your split of cash versus investments might be a good idea.
Top up your pension
The simplest way to make up a retirement shortfall is to top up your pensions.
Following the recent abolition of the Lifetime Allowance (LTA)and the increase to the Annual Allowance, now is a great time to contribute to the pension you hold.
The Annual Allowance has been raised to £60,000 for the 2023/24 tax year, meaning you can contribute up to this amount while still benefiting from tax relief.
The LTA charge has also been dropped to 0%, effectively removing the limit on charge-free pension withdrawals you can make.
As well as your personal pensions, be sure to revisit your State Pension by checking your National Insurance record for potential gaps. Make the most of your workplace pension too.
Top up ISAs and other savings
Not all of your retirement income will come from a pension.
Be sure to make the most of the tax efficiencies of ISAs.
The ISA allowance is £20,000 for 2023/24, split across all ISAs you hold. Interest earned in your Cash ISA is tax-free and gains in your Stocks and Shares ISA are free of both Income Tax and Capital Gains Tax (CGT).
If you can afford to make the most of your full allowance each year, consider doing so. This is especially important as the allowance can’t be carried forward; if you don’t use it one year, you lose it.
Get in touch
Email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you build the right plan to your future financial stability.
Please note
The value of your investment 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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.
