The truth is, though, that this period in our lives can be drastically different to anything we’ve ever experienced, so it’s worth participating in some careful planning and particularly when it comes to your finances.
Planning in itself can be extremely challenging, with a perplexing array of options on the table. However, at a time when life expectancy is on the rise, making adequate preparations should be a priority.
Know what your income will be and where it is coming from
You cannot put a price on being confident in the knowledge that you are able to comfortably fund your retirement, which is why it’s important to know what your income will be and where it will be coming from.
You should consider each income stream in isolation; whether that is a pension provided by the state, your employer or other provider, rental income from a property, an Individual Savings Account (ISA) or dividends.
Different types of investment come with different tax and financial implications which you should be sure you are aware of, before putting all your eggs in one basket.
Aligning your investments with the level of return that you would like to see, later in life, can often be a good move; perhaps striking a balance between those that are reliable and those that are a little riskier.
If you are nearing retirement and you already know where your money is invested, compute how much each source of income will contribute to the total ‘pot’.
Seek professional advice where appropriate to ensure that, when the time comes, you are drawing on your money in the most tax-efficient way possible.
Careful tax planning
No one likes paying more tax than is necessary, and particularly when this impacts upon the money that you’ve worked hard to save throughout your working life.
Understanding how tax works, as well as how to take advantage of the allowances and reliefs that are available to you, is key to minimising your tax bill and retaining more of your wealth.
When it comes to making decisions about where to invest your money, be clear on the tax implications before you jump in feet first.
This doesn’t mean being aware only of any immediate or short-term liabilities, but also of those that might await you further down the line.
It’s worth remembering that you can invest up to £20,000 tax-free in an ISA; there is no upper age limit to be eligible for a Cash ISA or Stocks & Shares ISA, and you can make tax-free withdrawals whenever you need to.
When it comes to drawing on your money in retirement, you should look to make the most of your tax-free allowances, as well as your tax-free pension entitlement and any personal savings you might have built up.
If you have a defined benefit or defined contribution pension scheme, you should bear in mind that you will be taxed on any withdrawals exceeding your tax-free entitlement.
Retiring from your business?
If you’re thinking about using your business as a vehicle for retirement, you will undoubtedly benefit from formulating a thorough plan and identifying your options well in advance of your exit.
It may be the case that you already have a suitable successor in mind but, alternatively, you might want to sell your business to a third party or secure a merger with another company.
For more on selling your business, read our article ‘What happens if… I want to sell my business?’ here.
If you are a business owner, it’s also important to consider the pension options available to you as these will differ slightly from those available to others and what is right for you will depend upon your circumstances. Options include:
