Retirement: It’s Your Time
by Lisa De Silva
Helping you make the most of your retirement, Lisa de Silva explores the financial and emotional aspects of life after work. Relax, explore, learn and most importantly have fun!
Whether you are looking forward to retirement and see yourself sailing happily off into the sunset, or worry that you may lose your identity and end up lonely and bored, forward planning is the key factor in making this time of life an enriching and fulfilling experience.
The prospect of not having to get up with the alarm and head off to the office can sound attractive on a cold and wintry morning, but retiring is a huge life event leaving many unprepared for the mixed bag of emotions it can bring. The transition from working, earning and saving money, to not working and spending money, can be challenging. Clearly, financial planning is paramount, but what is often overlooked but of equal importance, is psychological planning. This feature is designed to help you prepare for both, exploring both the financial and emotional aspects of retirement.
FINANCIAL PLANNING: PENSIONS & INVESTMENTS
The fundamental issue to address when it comes to retirement, is how to fund your lifestyle once you have stopped working and the earlier you start to plan for this, the better. Most retired people live on a combination of the state pension, and workplace pensions, along with savings, any rental income and investments, such as ISAs and Premium Bonds.
THE STATE PENSION
According to official data, the average age of those retiring from the workforce is 58 years, but with increasing life expectancy and a rise in the state pension age, this is likely to increase. Since 1948, the state pension has been an important part of retirement finances, but the age at which it can be claimed is under review. Currently, the age is 67, but this is set to increase to 68 years, for both men and women by 2037. At the moment, men born after 6th April 1951 and women born after 6th April 1953, are entitled to claim the New State Pension of £159.55 per week, but the actual amount received depends on your National Insurance record. State pension forecasts can be obtained from www.gov.uk.
Workplace pensions fall into two categories. The first is known as a defined contribution scheme, where your employer puts a percentage of your wages into a pension scheme. These payments qualify for tax relief and in some cases, your employer may also add contributions as part of an overall salary package. The money paid into the fund is invested in shares and so the value of the pot can go up and down, meaning the amount you end up with depends on how much you’ve paid in and how well the investments have performed. The other type of workplace pension is known as a defined benefit or ‘final salary’ scheme, whereby the amount you receive is based on your final salary and years of service. In both cases, your employer should be able to give you a pension forecast of what you’re likely to receive. These pensions can usually be accessed from the age of 55 years.
PRIVATE PENSIONS & INVESTMENTS
A private pension is taken out directly with a pension provider. As with workplace pensions, any money you put in qualifies for tax relief and the pension can usually be taken from the age of 55 years. Investments in the form of savings, ISAs, Premium Bonds and any share holdings, can also be used to help fund your retirement.
Financial planning for retirement can be complex and it pays to take advice. A good advisor will help you to avoid any pension scams, decide the optimum time to take your pension and how to receive it, whether as a regular income or by drawing down a pot of money to live on. They can also clarify any tax liabilities and government benefits, as well as talk through the impact of illness and death on pension rights. You may also need advice on how to track down any old workplace or personal pensions you may have forgotten about. There are two main ways to access advice. Firstly, you can visit a trusted independent financial advisor, or you can take advantage of free and impartial advice from two government bodies, Pension Wise and the Pensions Advisory Service.
FINANCIAL PLANNING: MANAGING YOUR FINANCES
Once you no longer have a regular income it’s important to reconsider the role of money in your life. Focus on affordability and decide if any lifestyle changes are needed to ensure you can live on your pension. For example, think about your transport arrangements. Do you still need two cars? Do you even need a car? Try to set an annual, monthly and weekly budget that you can stick to. It’s also important to take advantage of any age-related benefits for cheaper travel, outings and entertainment opportunities. Clever use of discount vouchers and voucher codes can all make a difference to the health of your finances.
FINANCIAL PLANNING: BOOSTING YOUR RETIREMENT PORTFOLIO
If finances are tight and you’re looking for ways to boost your retirement income, think creatively and you’ll be amazed at what you can come up with. The obvious option is to carry on working. There is no official retirement age and if you continue working after you reach state pension age, there is no longer any National Insurance liability. You could also consider part- time working, or starting a whole new career by starting a business, or investing in a franchise.
Most people’s biggest asset is their home and if your family has now own the nest, it might be the right time to downsize and free up some money to fund your retirement. Another option could be to sell up and move abroad, to cheaper and warmer climes, or to rent out your current home and decamp to cheaper accommodation, using the rental income to pay your bills. For some, an equity release scheme is a way to stay in their home and free up some of the money invested in it. These schemes can seem attractive, but are not appropriate for everyone and it’s vital to seek professional independent advice before taking this route.
Other ideas for making your home work for you, could include offering bed and breakfast accommodation, or offering your home on Airbnb during times when you are away. If you live near a station, airport or sports stadium, renting out your driveway could be another income stream. For those with large gardens and characterful homes, there could even be the option to use it for hosting events, such as weddings, anniversaries or special birthday celebrations. Although with all of these options, do check with your insurance company to ensure you are covered for any accidents, damage or liabilities.
PSYCHOLOGICAL PLANNING: PERSONAL RELATIONSHIPS
It’s important to recognise that retirement can put a strain on close personal relationships. In fact, between 2005 and 2015, the number of women over the age of 65 getting divorced rose by almost 20%. So, do be prepared and commit to nurturing your relationship through the transition from working to retirement. Even the most robust marriages will need to adjust to spending 24 hours a day together, seven days a week, without the distraction of work or children to lessen the intensity. So, it’s important to learn how to live together and successfully navigate this new retirement world. Try to be honest with each other about how much personal space you both need, renegotiate the household chores and commit to trying new activities both together and on your own. If it helps, you could even establish separate territories in your home, where you can both retreat to relax, watch TV and enjoy your hobbies.
It’s also important not to let other family members take advantage of the fact that you are retired. While you might love spending time with your grandchildren, do not become an unpaid childminder, left holding the baby, unless it is truly something that you want to do. Try to maintain your identity and some boundaries, so your children do not simply see you as ‘grandma and grandad’.
PSYCHOLOGICAL PLANNING: CREATING & MAINTAINING A SENSE OF PURPOSE
The psychological transition from being a valued team member in a busy workplace, to a stay-at-home retiree, can be extremely destabilising. Often we define ourselves through our work and without this form of identity, many are left feeling empty, aimless and depressed. The feeling can almost feel like a form of grief and to help minimise this, it is crucial to create and maintain a sense of purpose. If you feel that this might be an issue for you, do investigate the possibility of working part-time, as it will help you to adjust and move more easily from one stage of life to another.
If part-time work is not an option, you could try teaching or mentoring young people in your former field. Over the years you will have developed numerous skills, knowledge and contacts and using these to nurture and develop others, can be a rewarding experience. Other types of volunteering can also help in this respect and be mutually beneficial in both a practical and emotional sense. Hospitals, schools, animal sanctuaries and organisations like the National Trust welcome volunteers, so pick something you feel passionately about and get involved. In terms of making a difference, this is also a great time of your life to get involved with a pressure group or local politics.
Learning a new skill can also reinvigorate your interest in life. You could learn to build a wall, sew a dress, study philosophy, or research your family tree. Your local library and adult education centre, as well as websites and local groups, have a wealth of information and help to get you started.
PSYCHOLOGICAL PLANNING: KEEPING FIT, HEALTHY AND YOUNG AT HEART
Once retired, health issues can become increasingly important, so keeping fit and young at heart should be top of your list. Join a gym, or start a fitness regime. Walking is a great form of exercise and if you don’t have a dog, think about getting one. In fact, any animal would be a great companion during retirement, providing comfort, companionship and there’s the potential for exercise too.
If you’ve always wanted to travel, this is the perfect time to do so. Indulge yourself, after all you’ve worked hard for decades, so why not treat yourself to a cruise and explore a part of the world you’ve always wanted to see. If you dread the winter, could you spend these months abroad? The reality is, once you’ve adjusted financially and emotionally to retirement, there’s no reason why this can’t be one of the best times of your life, where you are free to follow your interests. In fact, you’ll probably end up wondering how you ever found time to go to work.