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Recent research suggests that in order to have a comfortable retirement income of around £46k you need a savings pot of just over £1.15 million to draw from. Whether or not this is in line with your personal income expectations once you stop working, it does put into sharp relief the importance of financial planning.
Of course, we all know that the earlier you start saving for your old age, the better. With the benefit of compound interest boosting regular contributions in the longer term, it is perfectly possible to build up a healthy pensions pot over the decades. But what if the ship of youth has long sailed and you didn’t make sufficient provisions, while retirement now looms large on the horizon?
We’re here to let you know that it’s not too late. Your 50s could be the perfect time to make up for lost time. Review your financial situation as a matter of urgency, make tweaks where you can and put a plan into place that will see you through your autumn years without having to worry.
1. Get the maximum out of your pension
The average person has 11 jobs in their life – which could theoretically mean 11 different pensions. Remind yourself of all your pensions providers and track down any lost or forgotten funds. Get up-to-date valuations from each pensions company and compare performances. You may wish to consolidate all your pensions under one roof as an easier way to keep track and facilitate your pensions management.
Don’t forget your accrued state pension rights. Obtain a state pension forecast from HMRC to get a clear idea of what you would get when you reach pensionable age. You can find out how to get a forecast here.
When it comes to topping up your pensions contributions, now may be an excellent time to turbo charge your future retirement income. Your 50s coincide with important lifestyle changes such as children leaving home or mortgage payments coming to an end.
According to research from Saga Investment Services, average monthly incomes among the over 50s jump up by £322 once the mortgage has been repaid. Simply putting that money into your pension for 10 years at 5% interest would yield an additional £48,600!
Finally, it’s a good idea to remind yourself of the tax efficiency of investing into a pension. Tax relief on pensions means that the government effectively pays 20% of your contribution. For higher rate tax payers, the additional government contribution could be as much as 40% or even 45% in total. That’s not to be sniffed at.
2. Make the most of your property asset
It is no secret that the UK property market has done unbelievably well over the past decades, particularly in London and the South East. If you are lucky enough to own your own home, ideally having paid off the mortgage, you are now sitting on a very valuable asset indeed. In terms of putting your home to good use to help you fund your retirement, there are several potentially attractive options open to you including
- Cashing in the equity: With the kids having flown the nest, or the garden now too big to manage, perhaps the time is right to downsize your home? Selling the house and moving to a smaller property or a cheaper part of the country can release a potentially sizeable lump sum. Whether you use the money to treat yourself to a holiday of a lifetime, pay the grandchildren’s school fees or boost your retirement income is entirely up to you.
- Borrowing against it: If you have no desire to move out, you can still take advantage of the equity accumulated in your property. Equity Release schemes in the form of a Lifetime Mortgage or Home Reversion Plan are specially designed long-terms loans that allow you to borrow against the value of your home while continuing to live there. Here’s some useful information to explain the concept further.
- Renting out a room: Generate an additional income stream by renting out a spare room. Did you know that you can earn as much as £7,500 tax free through the government’s Rent A Room scheme? If you are unsure about getting a permanent lodger in, you could try Airbnb for short term letting, or contact a local language school and offer summer accommodation for their foreign students.
3. Make sensible lifestyle changes
Having reviewed your capital assets and likely retirement income situation, you can now make sensible lifestyle changes to align your expectations. One conclusion might involve postponing your retirement age to allow your savings to grow further, yielding a bigger income when you do stop working.
Another option could be to carry on working in a part-time or freelance capacity to supplement your pension income. For many retirees, the idea of giving up work completely can be a scary prospect that robs them of purpose. Finding another occupation, whether related to a previous career or as a new endeavour, could be a great solution to keep the mind busy while bolstering income. It may be a welcome opportunity to start a new commercial venture or even to turn a hobby into a business.
Having put together an appealing household budget for your retirement, it’s easy to see whether there might be a shortfall to achieve your ambitions. And what is the best way to increase your future budget? Well, you can start by decreasing your current household budget right now.
Save on things like expensive treats, luxury cars and foreign holidays, and cultivate simpler (as well as cheaper and healthier) habits such as walking, cycling and gardening instead. Add the money you save by making these seemingly minor changes to your pensions pot, and reap the rewards when the time comes to take it easy.
The post 3 steps to boost your future retirement income when you’re in your 50s appeared first on MoneyMagpie.