Whether you see retirement as one long holiday or as a fresh start, it will certainly be the journey of a lifetime. Will you end up where you want to be?
When you think ‘retirement’, what image springs to mind? Maybe it involves an aeroplane touching down somewhere sunny. Most of us may hope to spend more time relaxing in exotic locations – but as any traveller knows, reaching your destination can be a long, complex and often stressful process.
The same sort of warning applies to retirement itself. You can think of retirement as the ultimate holiday, a great journey for rediscovering your freedom – and it is. But as with any journey, you need to pack your bags properly before you set off. That’s why you have (hopefully) been saving into a pension for most of your working life.
However, by the time you’re within 10 years of retirement, you’re effectively on the plane and preparing to descend. With arrival imminent, is there anything more you can do at this stage?
There certainly is. Please take your seats for the Retirement Landing Procedure!
‘Ladies and Gentlemen, we are beginning our descent…’
When your plane starts to descend, that’s the time you generally start thinking in detail about your holiday: what will you do in your first few days? What’s the weather forecast?
Similarly, when you’re 10 years from retirement you should start thinking about your income needs. How much will you expect to spend, not just day by day but month by month? Will there be any large one-off payments to make? It’s the time for large-scale planning – you can get to the details in a little while.
‘The temperature on the ground is a balmy 28 degrees Celsius…’
It’s hot out there – do you have water and sunblock easily accessible? Around this point of the flight, you’ll be gathering your bits and pieces together, checking your passport is where you last put it, and that your transfer details are handy.
From a retirement planning point of view, this is the time for working out how much income you can expect from all your various pension providers. Like gathering up your hand luggage, you might want to combine them into one pension pot to make them easier to manage. You should also make sure you feel fully informed of your options under pension freedom. At this stage, it’s important to understand what’s available and the associated risks, like running out of money. It’s a case of checking to make sure you’ve got everything you need.
‘Please ensure that your tray is folded away, and that your seat is in an upright position…’
Why do the cabin crew ask you to do that? For safety reasons. And in retirement, your safety back-up is the State Pension. Now is the time to contact the Pensions Service and request a forecast of how much you will receive (not everyone is entitled to the same amount). The State Pension isn’t really enough to live on by itself, but it can serve as a vital safety net.
‘Ladies and Gentlemen, please fasten your seat belts.’
We’re nearly there – there’s just the landing to get through now. In retirement planning, this is the moment of truth: the point at which you add up all your pension income (including State Pension) to see if it’s enough to get you to your chosen destination. But don’t panic if there doesn’t seem to be enough. Even at this late stage, you can increase this figure by paying more money into your pension. Tax relief means that any money you pay in will be boosted by your marginal rate of tax (so a basic rate taxpayer who pays in £8,000 will end up with £10,000 in their pension, thanks to 20 per cent tax relief*).
Thank you for flying Retirement Airlines. We hope you enjoy your holiday!
Your flight has landed, your plane has rolled to a stop and everyone’s getting off. But the cabin crew and are still there to offer help if you need any.
When you touch down in retirement, at first it can be as bewildering as setting foot in a foreign country. You immediately face choices about how to take your pension, whether or not to reinvest it and if so, where. It’s very easy to make mistakes at this stage, but equally easy to find expert advice on what to do.
Before rushing off to enjoy your retirement adventure, talk to an independent financial adviser about your pension arrangements. Not only can this prevent costly errors, but it can also significantly boost your income across the whole of your retirement. And if that enables you to buy a few more piña coladas by the pool, then all that careful planning will have paid off.
The MetLife Retirement Checklist
To help you on your retirement journey, MetLife in partnership with Unbiased have produced this checklist. It lets you see at a glance how to prepare if you’re retiring in 10 years or less. MetLife believes that everyone deserves real pension freedom. That begins when people feel informed and confident about their choices.
This article was first published by unbiased on the 27th October 2016.