For many in the UK, retirement is an anxious time. On the one hand, you can’t wait until you can stop working. On the other, you’re worried about living on a fixed income. You worry about your pension, your personal savings, your insurance, and what you’ll do about rising healthcare costs.
Here’s what you need to know to make smarter money moves and survive when it’s time to hang up your work shirt forever.
Scoping Out Your State Pension – What You Need To Know
Your state pension is the minimum amount of money you’re entitled to during your retirement. You can claim a state pension when you reach your state pension age. Check out when you’ll reach that age on Gov.UK’s state pension calculator.
You can also consider putting off your claim if you want to stay working longer. This deferral of your pension accumulates your pension benefits until you’re ready to retire.
Buy More Life Insurance
Most people don’t think of buying life insurance as a retirement strategy, but it’s a secret that big banks and hedge funds employ all the time. For the individual retiree, the reasoning stems from a somewhat forgotten approach to financial planning taught by Dr. Solomon Stephen Huebner at the Wharton School of the University of Pennsylvania in America, during the early 1900s.
His concept of Human Life Value stated that an individual should purchase permanent life insurance to fully insure the value of his life – forever – and that human life is the ultimate property, and source of all other properties, which needs infinite protection.
Just as one does not ever reduce the amount of home insurance, auto insurance, or liability insurance over time, regardless of one’s bank account size, one should never reduce the amount of life insurance in force on one’s life.
And, because permanent life insurance includes cash surrender values, it can be used to supplement your pension benefits at retirement.
The cash values in a life insurance policy grow at guaranteed rates, are tax-free, and participating or “with profits” policies pay dividends which may be used to supplement other income sources.
If structured properly (you should talk to a life insurance agent about this), your policy will provide significant protection against stock market losses or corrections, give you options to draw an income during a recession or depression, and the savings component of permanent insurance is accessible for any reason during your lifetime.
Consider a Lump Sum Annuity
When you retire, it’s tempting to take your pension as a lump sum. And, in the UK, you can withdraw up to 25% of your pension pot for this purpose. But, what should you do with it? That depends on your total financial plan.
However, a popular option is to annuitize the lump sum.
Annuitization means that you exchange your savings for guaranteed monthly income. You no longer have access to that savings, but you do have an income you cannot outlive.
Make Smart Cuts
The important thing here is to make cuts in your lifestyle that will not interfere with your long-term goals or activities which you have been planning a lifetime for. Many people get to retirement and suffer from a condition where they are tasked with reducing their lifestyle.
This is something that most people find unappealing for obvious reasons. Because you’re not making an income subject to regular raises anymore, some smart cuts are in order. But, those cuts shouldn’t interfere with your ideal life.
In most cases, this requires a little creativity. If part of your retirement plan was to travel, for example, you could compromise on the size of your home, selling it and rent a flat in a low-cost neighbourhood.
Or, at least buy a smaller home.
Then, you could travel in relative freedom with the money from the sale of the house, or at least part of that money.
Another way to save money would be to not travel. If travelling wasn’t part of your retirement dream, then you could work on other ways to cut expenses. You could still downsize your home, but perhaps you could also buy a bicycle and sell your vehicle.
This will help you stay active and reduce transportation costs.
If you can’t ride everyday, you could downsize your vehicle by buying an older model or work out a ride-sharing agreement with a friend of relative. Or, pay for ride-sharing through any of the popular ride-sharing services on the market now.
Joel Rowe works in the personal finance industry within the pensions sector. He has growing concerns on the futures of baby boomers and likes to write on the topic in the hopes of helping people live better lives once they reach retirement.