Money: Happy retirement… just be sure to do your sums first

For some workers, 2020 will be a milestone 12 months – not just as it marks the start of a shiny new decade, but because it’s the year they retire after decades of hard work.

Whether you’re excited or daunted by the prospect of giving up work, if you have a defined contribution pension there may be several options to weigh up when making decisions about your retirement income.

Jonathan Watts-Lay, director at Wealth at Work, a specialist provider of financial education and guidance in the workplace, says: “Many workplaces now offer support to their employees in terms of financial education, guidance and advice, so it is worth speaking to employers to find out what help is available.”

To help with the transition towards retirement, Wealth at Work shares the following tips…

Are you sitting on a nest egg?

When it comes to retirement, there are many assets, such as Isas, shares and general savings, which can be used as potential sources of income in addition to your pensions. It is beneficial to work out which assets you have, what they are all worth, and the best way to use them to make sure you are not paying unnecessary tax.

How much do you need to retire?

Work out how much income you are going to need in retirement, including an essential budget to meet your day-to-day living expenses such as household bills, and discretionary income for holidays and hobbies.

Don’t presume the figure is the same as your salary. It may be possible to have the same disposable income in retirement as when you were working, even if your pension income is less than half your salary.

Speak to your employer about any support that they provide, such as financial education and/or access to regulated financial advice. You can also receive free and impartial guidance at pensionwise.gov.uk

Have you shopped around?

Make sure you look around before purchasing any retirement products. It is important to not only check fees, but also make sure the deal suits your needs, and that you can withdraw cash as and when you want it, and for as long as you need it.

Are you paying too much tax?

Generally, the first 25% of a DC pension is tax-free and the remaining 75% is taxed as earned income. But some people may find themselves paying more tax than they need to.

People’s circumstances vary, but it may be more tax advantageous to take income from your non-pension savings first. You may be better off taking a smaller amount each year from your pension and topping it up with withdrawals from your Isa.

Can you really afford to retire?

Do you have enough put aside to be able to afford to retire, or do you need to work a little longer, or perhaps part-time?

Research suggests many people live longer than they expect to, so keep this in mind when budgeting for your later years.

Do you have a financial plan?

An adviser will look at all of your assets, work out the most tax efficient way for you to fund your retirement and then put a bespoke plan in place for you, which will support you throughout retirement.