Pensions
Plan now for what could be a holiday of a life time!
Adequate planning and provision could make your retirement a holiday of a lifetime! After all, retirement can last 20 or 30+ years! Therefore, it needs to be paid for well in advance and the earlier you start investing in it, the better your lifestyle will be when you finally stop working.
Such provision is essential otherwise you run a serious risk of outliving your savings. One in six of us will live to be 100 years old (Source: Daily Telegraph, December 2010).
External factors make it increasingly important for you to think about your retirement planning as early as possible in order to maintain your desired standard of living later in life.
Take final salary schemes, for example. These schemes, also known as defined benefit pensions, were traditionally regarded as the best type of pension a worker could get. They promise to pay a retirement income based on a percentage of salary every year for life. But they are on their way out.
The recession has increased the number of companies closing their final salary schemes to existing members, as well as new members. According to Dr Roz Altman, Director-General of Saga, most private final salary schemes are now closed at least to new members if not all and she predicts that such schemes will not continue in the longer term (Source: Saga Magazine, 6/12/2010).
Private final salary schemes have become too costly to administer, not just because of the recent economic downturn but because of longer life expectancy. lower inflation, falling stock markets and an increased regulatory burden.
So how much are you going to need to fund your retirement life-style? The simplest way to find out is to work out your ‘magic number’. This helps you calculate how much your pension fund should be to give you the retirement income you want.
Take into account all your likely living costs and calculate how much annual income you think you might need if you were to retire at the age of 65, allowing for inflation. Multiply this figure by 25 and this gives you your magic number – the retirement fund you will need based on current annuity rates.
As previously mentioned, the earlier you make a start, the easier it is to create the lifestyle you want. And in doing so, take into account that pensions still represent the best option when investing for retirement.
More changes were introduced on 6 April this year, which will limit the amount that can be paid into a pension to 100% of salary or £50,000, whichever is lower. In addition to this, you will no longer need to purchase an annuity at age 75 which increases the flexibility around how you take your benefit.
But whatever choices you make, do take action now. We are living to a greater age and retirement is going to last longer in the future. As a result, it is essential to save more. The decisions you make today will help determine the standard of living likely to be enjoyed in retirement. But the longer you leave it to take action, the more expensive it will be to catch up.
Whatever your stage of life, it is important to receive expert and professional advice on your pension requirements. The role of a specialist retirement planning advisor is to help you understand the need to approach retirement planning as soon as possible and to gain a better understanding of the various opportunities available and which of these opportunities are best for you. |
