Getting ready for your retirement?
Can you afford to retire?
Everybody's financial situations are different but the main considerations for most people when they think about retiring, will come down to:
- if they're renting, paying a mortgage or mortgage free
- if they have any debt
- if they plan to keep working, have considered phased retirement?
- how much money they have saved into their pension pot and other investments
- how much state pension they'll be entitled to
You need to assess your circumstances to learn when you can afford to retire, making sure you pay close attention to your living costs and the value of your pension. Only then will you know whether you can afford to retire.
What retirement income do you need?
A report released by the government suggested that those earning between £32,000 and £51,000 a year during their working life should aim to retire with an income worth around 60% of their salary. However, those earning more than £51,000 a year may need only 50% of their working salary or less, while those earning less than £32,000 may need more than 60%.
... then differing figures from minimumincome.org.uk and Barclays
Basic standard of living for a couple - *£350.24 (£11,362 per year)
* Figures calculated using www.minimumincome.org.uk - as at August 2015
Whereas a report from Barclays says people need £17,500 a year in retirement to enjoy a comfortable lifestyle (August 2015 Telegraph).
Barclay's study was based on 2,000 employees and suggested that the key requirements for a happy lifestyle in retirement are to be debt-free, run a car and enjoy a two-week holiday abroad each year.
Basic standard of living
Current salary £40,000
Current salary £60,000
It's certainly a starting point when thinking about the standard of living you might be able to afford. Starting at £11,362 for a very basic standard of living and closer to £30,000 for a more luxurious retirement.
Working out the income you'll need to generate
During retirement you may qualify for a range of benefits - everything from free television licences and bus passes to the winter fuel allowance.
Working out the income you will need to generate for yourself in retirement by taking into account what you think you need by based on forecasted incomings and outgoings is not an exact science, but making a rough estimate is important. It will give you a good basis for thinking about the amount of pension savings you will need.
Find out your likely retirement income
Use the free Money Advice Service pension calculator to estimate your retirement income; including income from workplace schemes, private pension contributions, plus State Pension entitlement age and more.
In a few easy steps, their pension calculator can give you an estimate of the income you'll get when you retire. This will include income from defined benefit and defined contribution schemes, plus your basic State Pension.
You'll also find out if your likely retirement income is less than what you'd need to fund your desired lifestyle in retirement.
Check your state pension
In April 2016 a new form of state pension will be introduced - a single payment, simplifying the current system. Your state pension will be calculated entirely under the new state pension rules. You'll usually need at least 10 qualifying years on your national insurance record to get any state pension.
You'll need 35 qualifying years to get the full new state pension. You'll get a proportion of the new state pension if you have between 10 and 35 qualifying years.
How to check your National Insurance contributions
You can ask for a national insurance statement online to check if you have gaps in your National Insurance record. You'll need to say which years you want your statement to cover.
When can you retire?
Default retirement age (formerly 65) has been phased out - most people can now work for as long as they want to.
Retirement age is when an employee chooses to retire. Most businesses don't set a compulsory retirement age for their employees.
If an employee chooses to work longer they can't be discriminated against.
However, some employers can set a compulsory retirement age if they can clearly justify it.
It's an employee's responsibility to discuss when and how to retire with their employer. This could include phasing retirement by working flexibly.
Members of occupational pension schemes need to discuss with their pension scheme managers what impact a change in working hours or income might have on the pension, whether the scheme supports phased retirement and working beyond the scheme's normal pension age.
What benefits are available?
There are a range of benefits available to help you in your retirement. These are just some of the benefits you could qualify for:
Free NHS prescriptions for over 60s
Free NHS eye test for over 60s
Carers allowance (if you earn less than £100 per per week) and qualify as a carer
Pension credits: If you've reached State pension age and have a low income you could be eligible for pension credits Council Tax