It may be years off or it may be approaching soon for you, either way it is better to be prepared for retirement when it comes to it. Being prepared for retirement means that you will be able to live out your retirement without worry and to its full potential. But how do you prepare for retirement?
Around two years before you are planning on retiring, it is a good idea to start thinking about what your options are for retirement and all than choices you will need to make. You can choose when you want to start taking your pension by and contrary to popular belief, you do not have to stop working to start taking it. The only requirement is that you must be 55 or over to work and take the pension, however, if you are in poor health you may be able to do this much earlier.
It may be wise to seek financial advice from a professional as these are decisions which will affect your future. We have provided some things that you should consider to make sure you are retirement ready.
Workout your retirement income
First things first, you should start out by working out how much income you are likely to have in your retirement
To work out how much you are likely to receive, it will involve the following:
- Getting a state pension statement. If you have yet received a state pension statement, you should go about getting one. This document will outline the estimate of how much you are likely to receive as your state pension. This will be based on your national insurance contributions so far. To get this, you can visit uk.
- Find out how much you are potentially going to receive from the defined benefit pension. Each year you will receive a statement as to how much pension you have built up so far and how much you can expect to receive when you eventually retire.
- Adding up the investments and savings that you could use during your retirement. A pension is a great way to save for the purposes of retirement, however, you may also have to have other savings in place that could be used to increase your income and therefore the quality of retirement.
- Tracing any pension that may be lost. You may have lost track of any old pensions; however, you can use the Pension Tracing Service to help you find them once more. This service is completely free and is run by the government. There are other services which are similar which are not run by the government, but you will be charged for these.
Clear any debts before you retire
To start your retirement off as stress-free and as well as possible you should aim to clear all your debts beforehand. It is no secret that your income is likely to decrease when you retire, so any fixed payments going towards debt will be more noticeable.
- Check the interest rate that you are paying on each debt.
- Add up the total that you owe. This could be on your credit card, on any personal loans and on your mortgage.
- Work out if you have any money to spare and pay off the debt that charges the highest interest rate as a priority. This is a very efficient way to clear any debts.
Many people choose to use their pension tax-free cash to clear the debts they have in place. However, it is good to be aware that if you belong to a defined benefit pension scheme (which is salary related), taking a lump sum payment can be really expensive and not worth it compared to the amount of income you will get in return for your pension.
Budget for your day-to-day living expenses
It is very important to budget for your day-to-day spending to maintain the sort of lifestyle you wish to lead. However, you are likely to have less money to live on in general – so consider this when budgeting.
Costs which are related with work will obviously fall (travel to work, lunches, work wear). However, your general spending may go up in other areas, such as leisure, healthcare and your utility bills.
Ways to boost your pension?
If you are approaching retirement and the amount you are likely to receive is slightly less then you had anticipated, there are things you can do to make the most of the time you have got before you retire to boost this amount.
Two key things which can help with increasing your money are to pay more into your pension pot and put back the date at which you choose to start taking your money from. These will allow you to increase your pension fund, although your retirement might be slightly shorter.