The ultimate guide to retirement planning for CABE members

Guiide’s Kevin Hollister discusses the four stages of retirement planning that members should make when considering their desired retirement outcomes.

Retirement planning hasn’t really changed all that much over the years: you work, you save, you retire. But today's savers are encountering unique challenges that previous generations didn’t have to worry about: longer life expectancy, changes to employment pensions, and more recently, a new government with potential changes ahead. So, how can members plan for retirement? Guiide aims to provide members with an education journey on retirement planning. Kevin Hollister, co-founder of the retirement guidance tool, sets out the four stages of retirement planning depending on where you are in your career.

Age 25

Pensions seem decades away when you’re young. However, every employer now has to offer you a pension scheme these days. You put some money in, your employer then has to, and your pot builds up over time. Make sure of one thing, you don’t miss out on this money!

When you are 25, you don’t need a detailed plan. You just need to know the answer to one question:  Given what I have and am paying in, what age will I likely be able to retire with a feasible retirement income? Don’t worry too much about anything else, as so much will change.

Age 40

Retirement no longer seems like it’s light years away. In 20 years or so, you’ll need a viable retirement income. So, it’s time to think a bit more about a plan.

You have probably built up some pension pots over the first 15 to 20 years of working. These pots, in addition to your future contributions plus your State Pension, will likely make up the bulk of the income you need when you retire.

Firstly, do some homework and track down your old pension statements. These days most providers have online access. 

No idea who these pension providers or schemes were? The first place to start looking is the Government’s pension tracing service. This will help you understand who the provider was at the time you worked at a previous employer.

Finally, understand what your State Pension may be by checking your National Insurance contributions.

No idea what you need in retirement? Luckily for us all the Pensions and Lifetime Savings Association (PLSA) produces a set of after-tax incomes needed to have a minimum, moderate or comfortable lifestyle. They also show what each type of lifestyle means in practical living terms. It’s a great free resource so use it.

You know what you have already, you know what you want and ideally when you want it from. So, the key question in your plan is: How much do I need to pay from now on to get it? That should be the focus of your plan at this age.

Age 60

Retirement is now just around the corner. You may well be thinking about it daily. Now you need a detailed plan for your retirement income. Retirement is likely to last 25 to 30 years for most people. So now is the time to refine your plan to make sure you can get what you need, based on what you know now.

Remember, retirement isn’t just about pensions, by now you may well have other non-pension assets and incomes to use in any plan. If you have, using all of these in the right way alongside your pensions is key.

If you want more security, get some annuity quotes to find out how much some more guaranteed income on top of any State Pension will cost. These two together may cover any essential spending to give you peace of mind.

Make sure you don’t do anything at retirement to end up paying more tax, or losing income. You’ll only have so much to last through retirement, make sure it works best for you.

Cash lump sums and tax

You can take 25% of your pension pot as tax-free cash. Do you need this tax-free cash at retirement? Will it be used to pay off a mortgage, other debts or enjoy a big spend? If not, if you don’t take it at retirement, you can keep it in your pension pots and get 25% of every payment from your pots tax-free. Any cash taken above this 25% is taxed and possibly at a high rate. Think carefully, do you really need this now?

If you have several pension pots, will you really want to take income from these different places and deal with different provider’s call centres?
It’s more likely you will want to put your pots together to make it easier to take money all from one place. If so, there is lots to think about, but the main three issues are:

• Don’t lose any guarantees by moving pots
• Don’t pay any exit penalties when you move
• Ensure your chosen provider has clear charges you can understand in two minutes, with no hidden one-off costs.

For most people, a simple low-cost fund designed by experts is best for the investment behind their pension. You can usually select one designed for long term drawdown "off the shelf" with the provider you choose. 

Age 75

You have been enjoying retirement for a while, using your plan. Your future income each year in your plan will be made up of fixed parts like the State Pension plus any flexible income you can take each year from any remaining pensions and savings pots.

Keep monitoring your plan each year. If your plan still looks good, you can continue to keep taking your income as expected. 

One option if things are going well is to consider completely guaranteeing your future income. When you get beyond 80, do you want to be tracking your investments and plan anymore? You may, if possible, just want to buy a fully guaranteed income for life with your remaining pots. Get some updated quotes. Can this provide you with enough for what you need now?

If your plan now has expected shortfalls, you may look to change your plan to a flat income going forward as a simple way to remove any future shortfalls. The same income level will continue but will buy less and less in future due to inflation. This may still be a good match for your actual spending in later years as many people’s spending declines beyond 75.

Until you have fully secured everything by using your remaining pots to buy a lifetime guaranteed income, you will need to keep tracking your plan each year. Make sure you do as your pots will move up and down. This will help you make sure you can still expect to get what you need in the future and adjust things quickly if not.

CABE recently ran a webinar on how to prepare for retirement - watch it below:

For more information on Guiide’s retirement planning tool, click here.