What are your retirement options?
Some choices in life boil down to a simple question of taste or preference – there is no great loss if you get it wrong. As far as your retirement is concerned, however, making suitable choices is far more critical, getting it wrong might prove very costly, and the whole of your future may be affected in a way you least wanted.
So, what are your retirement options?
Retirement or another dimension to your life?
In order to give a realistic consideration of your options, we believe that you should rethink the whole business of retirement itself.
Classically, it was seen as an entirely separate stage in your life – you pass through a single door into making a binding one-off decision that may irrevocably shape the remainder of your life.
The reality these days is likely to be quite different:
- it is possible to start planning for retirement at a much earlier age, including as a child
- there is no longer any universal cut-off point when you reach the age of 65;
- many people choose to continue to work beyond the state pension age, others choose to work part-time in retirement, still others might decide to do unpaid work – but are nonetheless as active as a person many years younger;
- legislation – surrounding defined pension schemes in particular – has been liberalised, so that you may be able to start to withdraw funds from your pension pot as early as age 55, continue to make contribution payments to it, and, with careful retirement planning, still count on a financially comfortable lifestyle later on in years;
- pension release may be one way of optimising the work-life balance that impending retirement may bring, but you also have the option of pension transfers to schemes that might give you more of what you want from your pension;
- in other words, age is no longer the simple turn-key it might once have been.
By thinking about retirement from these quite different angles, it is now possible to see that it is a process and not a single cliff-edge. Retirement is no longer a single, final chapter in your life, but can be a life-long process, over which you continue to exercise influence and control, and of course take advice.
Your pension arrangements, and the planning you put into them, are of course fundamental to the options you continue to exercise – but seeing these as part of an ongoing process helps to ensure that your pension makes a difference in your life (and that of your family), however, you choose to spend what might now be loosely defined as retirement.
Keeping your options open
Having changed the way you view the process of retirement, it is possible not only to have a clearer picture of your retirement options, but to consider ways in which you may keep those options open.
To do this, it might be helpful to consider two very broad stages in your preparation and planning for retirement:
- naturally, the sooner you start contributing to a pension scheme, the sooner your pension pot can begin to grow;
- this might start in your early 20s, once you have graduated from university, or completed any vocational training, and begin your first job;
- from that point on, you are probably juggling with demands on your finances from all sides – saving to buy your first home, finding the monthly mortgage repayments, planning to get married and having children;
- along with all these demands, you are also looking to grow your pension as effectively and as successfully as possible, in order to build the pension you may need later in life;
Consolidating pension growth
- as you begin to think more seriously about your financial affairs as you approach retirement – say at the age of 50 or so – you might enter a so-called consolidation stage;
- as the heaviest financial commitments of buying a home and raising children may have fallen away, you are likely to have built a sizeable pension fund through your contributions over the years;
- as retirement – or at least the possibility of it beckons – you are likely to be in search of ways of consolidating that pension, so that it continues to work its hardest for you, well past any actual retirement date, into many more years of enjoying life;
- as you pass the age of 50 or so, your pension pot is likely to be reaching its most valuable and the risks on your savings which you might have taken when younger, may now need more attention to avoid strong swings in value, and this indications a requirement for more tailored investment arrangements;
- because the size of the pension you have built is at its greatest during the years after 50 movements in the financial markets may have a significant impact on your pension, so consolidating your gains becomes a major objective;
- the longer you have –the longer this valuable period of consolidation;
- but it is important to remember, of course, that any pension release you seek after the age of 55, the smaller the remaining funds in your pension;
- so, if you opt for a partial pension release when the markets are performing less well, you might struggle to rebuild the funds that have been withdrawn – a further reason for considering a longer consolidation period of, say, at least 15 years, rather than leaving this crucial retirement planning stage too late.
Accessing your pension
With the value of your pension consolidated as far as possible, you may turn your attention to ways in which it might be accessed. The options here are not always restricted to a one-off commitment in the purchase of an annuity – there are sometimes much wider choices to be made. Unless you have already withdrawn the full cash value of your pension, you may have the choice of planning partial withdrawals and the continued appropriate investment of the remainder.