The current economic environment is causing disruption to the retirement plans of many. It is important that those retiring in 2024 understand their options, make informed decisions, and avoid making mistakes with their hard-earned savings.
To help, WEALTH at work, has created a list of top tips for employees who are thinking about retiring in 2024.
1. Work out a financial plan for retirement
People should start by working out what they think they will need to meet their day-to-day living expenses (such as household bills) and discretionary expenditures (such as holidays and hobbies) in retirement. Current outgoings are a good place to start when working this out. In retirement, many will probably be paying significantly less income tax, no National Insurance or pension contributions, and mortgages may be paid off, but other costs may be higher such as heating bills as retirees may spend more time at home. They then need to work out the value of their savings and investments including pensions.
2. Track down all pensions
There are 2.8 million lost pension pots sitting unclaimed because they’ve been lost or forgotten about. Some of the main reasons include moving jobs, or people moving house and not updating their address with their pension provider. However, there are ways to locate lost pensions. This includes using the Government’s Pension Tracing Service and putting in either the employer or pension provider details. If the company no longer exists they can contact Companies House, or if they worked for a charity they can contact the charity register.
They should then ask the provider for an up-to-date statement, so they know how much their pension is worth. For those who have several schemes and struggle to keep track of them all, it might make sense to consolidate them.
3. Check if retirement is affordable
Once someone understands their financial situation, they would then need to consider if they have enough saved to be able to afford to retire. According to the Pensions and Lifetime Savings Association (PLSA), a single person will need about £12,800 a year to achieve the minimum standard of living (this would cover all a retiree’s needs plus enough for some leisure activities such as a week’s holiday in the UK and eating out occasionally); £23,300 a year for a moderate standard of living (one foreign holiday a year and more frequent eating out); and £37,300 a year for a comfortable standard of living (this would cover all a retiree’s needs plus two foreign holidays a year and some luxuries such as regular beauty treatments). For couples, it’s £19,900, £34,000 and £54,500, respectively.
Research has found that most people live longer than they expect. The Office for National Statistics (ONS) estimates that the average life expectancy in the UK for people aged 65 will be 85 years for men and 87 years for women. People should keep this in mind when planning for retirement.
4. Look at all sources of retirement income
Many people think of their pension as their only source of income in retirement, but other assets such as cash ISAs, savings and investments can be used. For example, if taking money from a pension brings someone into a higher income tax bracket, it might be worth them taking the extra money needed from their taxable savings instead. With careful planning, it may be possible to avoid paying unnecessary tax which means more income in retirement.
5. Consider delaying retirement or working part time
If someone is worried that they haven’t saved enough, it may be worth delaying retirement or continuing working part time. This would enable them to make more pension contributions, and they would be able to take advantage of tax relief and employer contributions for longer to build up their savings. In fact, the ONS reported that nearly 100,000 of retirees actually returned to work in the twelve months leading up to March 2023.