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Retirement planning: Will your finances dictate your lifestyle?

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When you retire, your ambitions and aspirations may be guided by your budget – or, if you’re planning for retirement in advance, you could save and invest the right amount of money to try and make your dreams come true.

In an ideal world, we would all think about our retirement aspirations well in advance – that way, there’d be time to save enough money to make those dreams come true. But even if your budget is limited, there may be things you can do to help achieve your aspirations.

Create a budget that will facilitate your dreams with careful retirement planning

If you have ambitious plans for retirement you’ll need to plan your finances well ahead. “The most important thing is to be realistic about your goals, and what sacrifices you might need to make to achieve them,” says Rhys Francis, CEO of Lorica Wealth Management

“You need to save enough to ensure you have the best retirement you can, but not so much that you make life difficult for yourself now. 

Ask yourself whether that daily cappuccino money could be better used providing for your retirement.

“Budget planning is not just for after you have retired. Think carefully about the things you are spending money on now, and ask yourself whether that daily cappuccino money could be better used providing for your retirement,” Rhys says. 

You also need to account for the future cost of money. If you decide you need £2,000 per month to live on if you were to retire now, how much will it cost to buy the same things when you do so?

When planning your retirement, remember that while pensions are a tax-efficient way of saving for the long term, there are other savings products such as ISAs that you can also use to help finance later life.

“It’s not just about your pension,” Rhys says. “There are also other savings vehicles that use different tax allowances to help your hard-earned money finance the retirement of your dreams.”

Rhys also advises reviewing your investments on a regular basis. “That’s the only way you will know if the way they are invested, and the amount you are saving, is still right for your goals.”

Retirement planning with a modest budget

If your retirement is dictated by budget, you might need to fine tune your plans. For example, if you want to travel, financial constraints might force you to rethink the five star hotels and first class flights you might have dreamed of – but you could buy a camper van or consider coach travel. It’s a case of maximising the income you have and making sensible choices within your means.

“If you’ve left it too late to make a real difference to your retirement income, don’t panic,” adds Rhys Francis. “It may not be possible to make lottery-winning-style changes, but there are ways that proper tax planning can improve the amount you have to fund your plans.”

Nina Sampson, a private client solicitor working with clients in their retirement planning at Pitmans LLP London, says that retirees with modest wealth should check they are maximising the returns on investments as well as their eligibility for any social security entitlements: “Some clients consider taking out equity release schemes on their property to release income to spend, whilst others will continue to work part time to bring in a little money each month.”

Equity release can be high risk and needs careful consideration with independent financial advice.

Retirement planning with a plentiful budget

“If you are lucky enough to be in a position where retirement funds are plentiful,” Rhys says, “there are still ways to make sure that your money goes further. You may wish to start considering efficient tax planning, both for your current income needs, and also for future generations”.

“Wealthy clients tend to become more conscious about their wealth passing down,” says Nina.

“Tax and succession planning through the use of wills, trusts or life-time gifts can have a considerable effect. For the very wealthy, financial protection through the creation of trusts, offshore tax planning, or large gifts can help reduce tax and ensure a spouse and children are protected financially.

“Some clients will buy deprecating assets like cars or boats, whilst others will make large gifts (seek legal advice when doing so). You should work out how much you can comfortably spend on your dreams, and give away to loved ones, bearing in mind the cost of living in care homes or long term care.”

There are benefits to making financial provision for the kind of retirement you want, but if your retirement will be dictated by your budget, there may still be ways to achieve your dreams and aspirations.

Are you planning to save enough to make your retirement dreams come true – or will you plan your retirement based on the budget you have available? We’d love to hear your thoughts so please feel free to share them with us below.

This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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