Planning for Your Retirement

Ten things you need to know about retirement:

1. You should decide when to retire. Nowadays you can work past the state pension age if you wish. Equally, you can take early retirement and retire before the state pension age, but you won’t receive any state pension before your state pension age.

2. Working past the state pension age. Even when you are entitled to receive the state pension, you don’t have to take it. If you put off claiming your state pension by at least five weeks, you could earn extra state pension. If you delay taking your state pension by at least a year, you could earn a lump sum. Another possibility is to reduce your hours and work part-time after your state pension age.

3. The state pension age is changing. At the time of writing (July 2011) the state pension age is 65 for men and 60 for women, but the ages are increasing. From December 2018 the State Pension age for both men and women will start to increase to reach 66 by April 2020.

These proposals affect you if you are one of the following:

• a woman born on or between 6 April 1953 and 5 April 1960

• a man born on or between 6 December 1953 and 5 April 1960

4. You should plan for your retirement. This means checking your personal , company and state pensions. You should ask yourself whether they will provide enough income for you and your needs throughout your retirement. You may have other savings and investments, so include those in your calculations too. Planning for retirement, however, is not just about financial planning.

5. Retirement changes your lifestyle. Retirement is considered to be one of those stressful events in life. So, while you may be leaving behind the stress of your job, be warned that the change in your lifestyle might bring unexpected isolation, loneliness and boredom. On the brighter side, retirement should bring you freedom to enjoy the rest of your life and the opportunities that come with it. That’s why planning for retirement is not just about money. Plan your goals and ambitions. Now is the chance to fulfil some of them. Before you retire – when you are planning for it – ask your employer about retirement preparation programmes – after all, many people have retired from working for them before you.

6. Tax in retirement. When you reach state pension age, you stop paying National Insurance, but you may still have to pay income tax. Your taxable income includes your pension once you’re receiving it, and if your total taxable income is higher than your tax-free allowance, you will still be liable to pay tax. Whereas company and personal pensions have tax taken from them before you receive them, the state pension does not.

7. Low income pensioners may get benefits. If you are on a low income in retirement, you may be able to claim the tax back. It is, after all, likely that your income will reduce in retirement. Benefits are available in certain circumstances and tax allowances are more favourable if you’re 65 or over if your income is low.

8. Retiring abroad and pensions, benefits and tax. You must consider what impact retiring abroad will have on your finances. You can still receive the state pension when retiring abroad. In some countries the pension will be index-linked as at home, but not in all. You may have to pay tax on your pension abroad, but it will depend on whether you're classed as 'non-UK resident' for tax purposes and the country you're living in.

9. Do you know about all your pensions? If not – and this can easily happen if you have changed jobs several times in your career – you can ask the Pension Tracing Service to see if they can track down any missing pensions in your name.

10. Early retirement may sound like a good idea. However, you need to consider the financial implications of early retirement. The earliest you can receive a personal or company pension has been increased in the last couple of years and is now 55. Even that is subject to the particular pension scheme rules. Retiring early will reduce the amount of pension you can take and the lump sum you can receive.

Retiring is not something that should take us by surprise. As with all things in life, a bit of planning can make a huge difference.

What's this?