No regrets in retirement: How to retire with a sound financial plan

Article written by Kellands Hale, our preferred independent advice firm.

This article is not intended to be financial advice to any individual. The views expressed are those of the author and Moneyfactscompare.co.uk does not endorse the content.

We like to think of retirement as a simple time, but financially, there’s much to consider before you put down your tools. It’s difficult to anticipate the risks in later life, so taking the advice of others who’ve reflected on their experiences could be hugely beneficial.

Here are the four retirement regrets some individuals experience, and how you can escape them when you embark on your own retirement journey.

If you are approaching retirement, one of your biggest fears could be running out of money. That’s why some people regret not locking into an income guarantee, like an annuity.

This regret affects a variety of retirees, even those with larger pension pots who wish to maintain a standard of living in later life.

Although an annuity is viable for some, there are plenty of other options to consider. 

For instance, you could consult a financial planner who, using cashflow modelling software, can help work out a long-term, sustainable retirement income drawn from sources including:

• Your personal pension pot
• Individual Savings Accounts (ISAs) and General Investment Accounts (GIAs) you hold
• The State Pension
• Defined benefit (DB) pensions, also known as final salary pensions
• Any inheritance you receive
• Other income sources such as buy-to-let properties.

What’s more, checking in on your bespoke retirement plan as the years go by can help ensure you have enough to live the stable, relaxed lifestyle you deserve in your later years.

While it’s important to aim for some form of guarantee, you’ll need to keep some of your retirement income flexible. This is because life can be unpredictable, and some retirees regret not having quick access to a reasonable portion of their cash.

A balance between flexible access to your cash and earning a guaranteed income is tricky to strike, but not impossible. 

If you know how much you can afford to take as income each year, and you’re confident your retirement income will last a lifetime based on this strategy, you can be flexible within that long-term structure.

For example, a Defined Benefit and a State Pension could form the bedrock of your retirement income.

Additional income from your personal pension pot, shares, property, and part-time work could then be taken more flexibly – provided you have spoken with a professional about the impact these may have on your tax bill year-on-year.

It can be tempting to draw a large lump sum from your personal pension pot as soon as you retire – but leaving much of your retirement income in cash can be detrimental for two key reasons.

Firstly, taking a large portion of your pension as a lump sum can increase your tax bill. Usually, you can draw 25% of your personal pension as a lump sum without paying Income Tax, but any amount above this percentage is generally subject to your marginal rate.

So, taking your pension more slowly could improve your tax circumstances in retirement.

Secondly, leaving your wealth in cash over the years can cause it to lose its spending power. This is because of inflation – which is used to measure the general rise of goods and services.

To illustrate, if you retired in 2000 with £100,000 it would need to grow to almost £177,300 to retain its purchasing power today.

So keeping your pension as cash without earning any interest can reduce your purchasing power in later life. 

In the decade leading up to your goal retirement age, it’s invaluable to think about tax efficiency in retirement as soon as possible. This is because many aspects of your retirement income may be liable for Income Tax, including:

• Your State Pension payments (when combined with other income you earn)
• Withdrawals from your private pension pot
• Any income you earn from part-time work
• Your final salary pension.

On top of Income Tax, you may also pay Inheritance Tax (IHT) on wealth that is passed down from parents or grandparents. What’s more, you could pay Capital Gains Tax (CGT) on some asset sales too, including non-ISA shares.

So, if you’re not yet retired and looking to avoid this common regret, it’s essential to constantly evaluate your tax liabilities. This remains important when you’re reaching retirement, so speaking with a Kellands financial planner could be a prudent move as you approach this milestone.

If you’re approaching retirement and wish to avoid these four common regrets, get in touch today. We can help you prepare for a smooth, sustainable lifestyle in your later years. Email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.