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What does retirement mean to you?

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Thursday May 17, 2012 at 9:00am

When Paul McCartney sang “When I’m 64” at the height of Beatlemania in the 1960s he couldn’t possibly have imagined what life had in-store for him at 64. What about you? Have you thought about what’s in store for you once you reach retirement age? 

Whether you approach retirement with trepidation or with a big sigh, glad to leave working life behind and do the things you’ve always dreamt of, will largely depend on how much planning you’ve done and how early you started to save for your retirement.

Whilst in the 1960s retirement might have all been about a quiet life, nowadays we’re living longer, are healthier and more affluent. And many of us are taking advantage of retirement to see the world, move abroad or do something we’ve always wanted to do. For some downsizing and releasing equity to help children is popular, and 1-in-20 retirees or “olderpreneurs” now set up businesses having never had the opportunity before.

So, I suppose the lesson in all this is that retirement means different things to different people. But the one thing that we all have in common is a need to finance our retirement, whether that’s having enough money to buy a holiday home abroad or just to live out our days fairly quietly and not be a burden on our family.

I know I sometimes sound like a broken record when it comes to pensions and retirement planning but I make no apologies, as the cost of not planning ahead is really really serious - just ask the Government who are starting to realise the impact on inadequate pension provision for the country as a whole.

Everyone needs to save for retirement and pensions are by far the most tax-efficient way of doing so. You can pay in up to £50,000 per year to a pension and the big advantage is that contributions are made out of pre-tax earnings, so the tax man actually adds to whatever you pay in. In simple terms, a £1,000 contribution will cost a 20% taxpayer £800, a 40% taxpayer £600 and a 50% £500.

Yes, the assets you hold in a pension are locked away until your selected retirement age (often 55), but at that point you can take 25% as a tax free lump sum.

Why do people avoid pensions planning?

Many people shy away from making proper pension provision because they see it as complex or risky. The reality is that pensions are not that complicated, in principle at least. You save, the Government adds to your savings, your savings grow tax-free and they ‘mature’ at a certain point in time when you can take a tax free lump sum and regular taxed income.

They’re not risky either – or at least they are as risky as you want them to be. You can choose, either alone or with the help of an independent financial advisor, where you want to invest and the level of risk you are prepared to take. As with any investment the more risk you are prepared to take the greater the potential gain.

The first step for most people is to start thinking about when they want to retire and what their financial goals are. I’ve written before about knowing what your financial number is. Once you understand how much you need in your retirement pot you can work backwards to plan for the kind of retirement you really want.

Remember the old adage – to fail to plan is to plan to fail, true in business and in retirement planning.

Andy Parker
Chartered Accountant and Chartered Financial Planner

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Parker Chartered Accountants and Financial Advisors is the trading name for PLW Advisors Ltd (Registered No. 10396831), and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here