Pension and retirement, what does that mean to us all? Last week, I heard from a client, he said, “Craig, this means freedom.” His words sounded so happy when he said this to me; his whole body language changed, and his smile grew ever greater just thinking about it.
So, if this will be our buzzword, when do you all hope to achieve freedom in the balance with work and you living and enjoying the life you have?
We have all heard about state retirement or the old-age pension; many other phrases are used, depending on your home country. We all have a habit of thinking this is how we must save and plan for our retirement, even if it is only a basic income at retirement.
Well, the good thing is, we don’t have to leave it like this, we have choices, they range from what age you wish to stop working and have freedom in your life, to what plans you use to take care of the income you may need in the retirement years. Mostly we see the age range somewhere between age 50 to 65; this is quite normal across the globe. From 2026 to 2028, the UK is extending the retirement age for the state pension for men and women, rising to 67.
To allow us to plan for this freedom in our lives, we must know what we need to live on; this can be hard for the younger generations to start planning. But, the great thing is, we can help with calculators that can forecast income in the future. First, look at inflation to support the erosion of the spending power and then calculate the sum of money needed to allow for the income level you will draw on in those golden years.
No one option can fit all; it is personal and built around you and your requirements.
For instance, you may have preserved schemes from older pensions you paid into at your last job; you may have a personal plan that was entered into when you first started working. Then again, you may be on a path to saving for this future date that involves a regular savings amount each month into a tax-efficient plan, maybe an ISA, if you had one in the UK. Finally, it may be a savings plan in the offshore world due to you being an expat. All of these are potential starting points for you to use and project what the future might hold for you.
There are, of course, some people who work for large organisations that have a final salary scheme pension, also known as a Defined Benefit Scheme. These schemes were extremely popular through the ’80s into the early 2000s. However, since then, we have seen a reduction in the numbers in force, mainly due to prohibitive costs, stricter rules for employers on what they are obliged to offer the employee, and more stringent regulation have resulted in increased costs to administer these pensions.
If you are one of the lucky people to have a final salary pension, then great, this could be just what you need at retirement. But, before you take me on face value and think that’s it, there is no more to worry about; look at what you actually have?
The basics of how this scheme works are as follows:
Known to most as 60th schemes.
Thirty years worked would provide 30/60 as a percentage; this means 50% of your final salary would be paid as an income for life.
The maximum you could receive is 40/60 or two-thirds of the salary at retirement. It means working for 40 years for the same employer, not something we tend to see these days.
So someone that retires on £70,000 per annum has worked for 32 years would receive 32/60, which :
70,000 / 60 x 32 = £37,333.33 per annum.
By using this simple calculation, you can check to see exactly how good this scheme may be for you in the future? For example, will you stay with that one employer for your entire working life?
If the answer is no or not sure, you should book a meeting with us and check your pension and retirement options.
Retirement is complicated because we have to think about it for so long, plan for it over many years and then mix it into the changing of careers and employers; it is very much a stop-start scenario we are looking at.
Starting young is a good point; the longer you can save, the higher the gains. Also, the more diverse your strategy is, it gives you more options when life doesn’t quite go according to plan.
We review pensions every year to ensure they are achieving the goal you set, so get in touch with us; freedom awaits you after you do.
Contact Corestone, where informed decisions are the best decisions.