Financial planning for Retirement

Pension planning is in the midst of change at the moment, as future generations are going to have to work longer for possibly less pension.  Money markets, shares, the recession, what is happening around the world, are all having some effect on interest rates, share values, annuity rates.

If you work in the public sector you usually come away with a final salary pension, which is one of the best to have, that is changing now and Lord John Hutton has just put forward plans for future pension provision for the public sector which recommends that the pension is based on average earnings rather than final salary.  This could mean that high earners will get a lesser pension but some lower paid workers would gain.

Pensions schemes where your employer contributes are also one of the best, especially if they are index linked which means they will rise with inflation year on year.  Always join one if you get the chance.  Private pensions differ greatly dependent on what rates are at the time you retire.  No-one can ever predict this, you can just be lucky and retire at the right time.  The more you pay in the more you should get, but to be honest you have to have a very big pension pot to get a decent pension.

The state pension is also being altered, hopefully, for new retirees whatever they've paid into the National Insurance pot getting a standard £140 per week, due to be instigated in 2015 at the moment.  Leaving people already retired very disgruntled if they've paid National insurance contributions all their lives not gaining anything.  This isnt set in concrete yet so dont bank on it, save yourself. You can apply for a state pension forecast before you retire and if you have years missing, pay back years if it is worth it to increase your pension.  The DWP are reducing the number of qualifying years for a full pension so this will bring many more people into the full pension net than ever. You can also defer taking your state pension  if you can afford not to, to enable you to get more or a lump sum a few years down the line.

Investing when you can afford to do it in fixed rate bonds, ISA's, shares, gold, property will all stand you in good stead.  Savings rates are very low at present so the return on your money is not so great, but they are due to increase in the not too distant future.  Remember every little helps.

You dont have to use your pension pot until you are 75 to get a private pension.  You dont have to use the pension company you have saved with either, you can shop around for the best annuity rates, remembering once you have taken an annuity your capital has gone and you cant change it.  If you have health problems e.g. hypertension, diabetes or smoke, you can get a slightly higher pension if you declare this at the time, this is called an impaired life annuity, as they presume you wont live as long as a completely healthy person, so wont have to pay the pension for as long!!

Money purchase pensions are the alternative to the final salary scheme and usually rely on the stock market.  You can also increase the value of your pension by paying Additional Voluntary Contributions, usually called AVC's, they are usually paid to a different company to your pension provider to give you two bites at the cherry.

Equity release is another way of obtaining money from the value of your house, but there are a lot of problems at times with it, if you find a reputable finance house who deals with this sort of thing, you could come off well.  Once you've entered into equity release, you have no way of getting out of it, or obtaining any money back.  Its very popular though now as this generation just retiring or about to, are asset rich e.g. a house, and cash poor, so it would probably be a good solution for them.  Often adult children dont agree with it, as of course their inheritance is being partly taken away, however, if they want their parents to have a comfortable retirement, they shouldnt object. Lots of pros and cons with this type of transaction.

Of course you must remember that you probably wont have the same expenditure as when you were working and will have to cut your cloth according to your income.  You should still be able to enjoy a good lifestyle if you're prudent, shop around, take notice of tips to save energy, drive slower to conserve petrol, sell a second car if you dont need it.  Holidays can be taken at the cheapest times, you have time to shop instead of grabbing the nearest thing, this can save you alot of money.  When you get your free bus pass this opens up lots of travel opportunities instead of using your car, a senior railcard is useful if you take a lot of train journeys.  Libraries, walking, window shopping and lots of simple things are still free.  Joining a health club at off peak times is a reasonable and pleasurable way of spending time, at the same time keeping fit.

Pay for newspapers with offers that arise, do car boot sales to rid yourself of unnecessary clutter or sell on eBay.  There are also plenty of part time jobs to supplement your pension if you so wish and want to mix with people and dont feel you're ready to retire fully, plus earning at the same time.  If you have any good ideas to make money, do so, you may be able to teach something, do craftwork, or set up a money spinning website, become an Avon lady. Men can do odd jobs, gardening, taxiing.  There are lots of possibilities if you are entrepreneurial enough to find them.

Of course you must remember as prices rise us retirees don't get many, if any, increases in our income so we become fixed income senior souls (FISS's)!

by Janice L. Joplin