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How to plan for your Retirement

Get on track for a comfortable retirement.

Deckchairs on the beach

If you have a defined contribution pension scheme – whether private or through your employer – your retirement savings have probably been hit quite hard by the COVID-19 pandemic over the past 12 months. That’s because pension funds invested in the stock market and recent turbulence, which has caused big rises and falls, have had a significant impact on how much is in your pot.

Why is Planning Important?

Whatever stage of your life you are at, planning for your retirement has arguably, never been more important than it is now after last year’s events. There are plenty of options to consider when it comes to accumulating your pension pot, which will hopefully allow you to maintain a comfortable quality of life after you retire.

The longer you are able to save for retirement, the lower the amount you will need to set aside. Obviously, that implies that the earlier you start saving for retirement, the easier it should be. With the cost of living in the UK increasing and many variables to consider – not least the age at which you start saving and when you intend to retire – only you know how much you need to fund a comfortable retirement.

Savers in their 20’s, would require much more than people nearing retirement. But they could put in smaller amounts due to the having many years of their careers ahead.

Where do I start?

If you’re employed and in your 20s or 30s, it’s a wise idea to take advantage of your workplace pension. Every employer is legally obliged to auto-enrol workers over the age of 22 and earning more than £10,000.

Self-employed workers in this age group should consider saving into a personal pension or a lifetime ISA to kickstart their retirement savings. These options are also open to employees to supplement other savings going into their pension pots.

Usually, workers who are early in their careers can be more confident about putting their savings into riskier investments as they have many working years left to ride out any volatility. If you’re approaching retirement, get an idea of how much your retirement income is likely to be as things stand. It often makes sense to reduce the level of risk for savers who are nearing retirement as they won’t have much time left in their careers for their savings to recover from any high-risk losses.

What are the Tax Implications in Retirement?

Anyone over the age of 55 can take their whole retirement savings as a lump sum, with the first 25% tax-free and the rest taxed at their marginal rate. Be aware that withdrawing this as a lump sum can push you into a higher income tax band, potentially doubling your income tax bill if you are a basic-rate taxpayer.

Always seek expert advice if you are considering drawing your pension.