The common mistakes people make before retiring
16 September 2016
I’ve seen a lot of clients looking to retire over the last few years and I don’t think I’ve ever met a client that has ticked every box when thinking about their long term retirement.
These are the 6 key steps we feel you should always do and take before considering retirement:
1) Get a full medical – it seems very obvious but I know very few clients that actually do it. The difference this information will make on ensuring the right decision is made will be huge. Understanding your health and let’s admit it, your life expectancy is such a key element of retirement planning. In most walks of life people do research when making a significant decision such as a holiday, changing a car or buying a house. My advice is conduct as much research as possible and understand where you are in life, the type of retirement you want and the risks you are prepared and not prepared to take. Whether you receive a clean bill of health, minor medical considerations of life changing medical news the outcome will help discount many retirement strategies and focus your mind on the type of retirement you want. Remember to be realistic about your health.
2) Understand your minimum income requirement – this sounds very obvious but it’s not always considered. Decide upon the income you require and your combined income if married or have a partner. Reliance on the state is becoming less of an option and in future years we could have changes to benefits and State Pensions. The new pension flexibilities have really opened up the pension landscape and retirement options. For some, getting your hands on all your pension is very enticing. For most, this will be the last opportunity for lump sums and access to large sums of capital. I can’t overstate the importance to look slightly beyond this and think long term about lump sums and the absolute minimum income required.
3) Don’t take the option offered by your pension straight away – historically people have been sent retirement packs by their pension provider offering an annuity. Unless they have guaranteed benefits or guaranteed annuity rates, this has often been the worst deal on the table. People have been scared by the cost of independent financial advice. In truth, retirees are almost certainly better off taking independent financial advice as any annuity or enhanced annuity is usually much higher even taking into account the cost paid to your financial advisor. There are some great sites around that provide free retirement reports covering all your annuity options should professional advice not be for you. Whatever you do, taking the first option isn’t likely to be the best.
4) Get professional advice through an independent financial advisor or retirement specialist – I’ve had a look at average costs for retirement advice and it seems to come out at around £1,500. Obviously costs will vary depending on the type and complexity of advice you require. This might seem expensive. I truly believe that it makes no sense not to get advice. It’s failing to get advice that costs money. This might not be physical pounds and pence on day one out of your pocket. But it will be thousands of lost income over the lifetime of your retirement. Take into account the new flexibilities and it could be tens of thousands in lost assets to your husband, wife, partner or children. It’s really important to understand what it costs for the advice and ongoing support through a professional firm. It might be worth asking the question “what we it cost me long term not to take advice?”
5) Don’t give your pension away. Annuity rates are at an all-time low. This isn’t great news for those looking to secure a guaranteed income. Make sure you select the right guarantee period and the right beneficiary options. Even under annuity, the new rules make passing your pension fund to your spouse or children much easier. Don’t allow pension companies to benefit from the wrong choice.
6) Find the right advisor and avoid the scams – there are plenty of good firms in the UK that do a great job for clients. Remember, a good advisor will save and make your money rather than cost you.
Paul Barnes DipPFS
Email – email@example.com
Independent Financial Advisor and Pension Specialist
PDB Wealth Management Ltd & www.pensionstoretirement.co.uk