In our last post we discussed the virtues (or lack of maybe) of treating yourself to a one-off indulgence-item during retirement. Here we take a different approach and look at whether it’s possible to have an effective savings plan in place during retirement, and if so, how best to go about it.
With the average annual expenditure of pensioners a third higher than just five years ago, thanks to the double-hit of falling income from pensions and rising household costs, it’s estimated that each pensioner requires a ‘during-retirement’ income of more than double the basic state pension. A worrying thought, especially if your pot is looking smaller than you’d hoped, but don’t panic, there are many options for people looking to supplement what they already have.
Here we take a look at some of them:
Saving through Saving.
You may well be sitting thinking, ‘well I currently have a decent enough income from my pension, I rarely spend it all.’ That’s fantastic, and it gives you a great opportunity to save surplus cash for a time when living costs may increase.
Consider setting up a short-to-medium term saving plan into which you can deposit any surplus cash.
This isn’t going to radically change your income, but it will provide a valuable back-up pot for any unexpected expenses, (we all know how an MOT bill can stack up), and avoid you’re day-to-day lifestyle being effected.
The peace of mind you’ll get from knowing you’re still able to save, whilst maintaining your living standards, is a great bonus too.
Saving through Scrimping.
Now this isn’t about being poor, it’s actually about not spending your cash on things you don’t have any need for. Is it really necessary to have a multitude of regular costly monthly payments like mobile phone contracts, the big SkyTV package and so on, when they’re not adding any real value to your life and there are many other cheaper options available. Surely a Pay as You Go phone would be perfectly sufficient?
Other monthly payments such as insurance and utility bills are another drain on finances, and they can often be switched, resulting in significantly lower outgoings. A great place to check what other deals are available is uSwitch. They have tools on their website which allow you to compare your current deal to others on the market, and advice on how to go about switching from one to the other. Amazingly, most customers have never changed their utility provider, resulting in us collectively throwing away £3.5 billion a year that we could have saved.
Here’s where you need to be especially careful and do your research before you make any big decisions, given the amounts of money generally involved in worthwhile investments.
A great rule to stick to is this; if it looks to good to be true, it definitely is.’ Clearly the general rule is, the bigger the risk, the bigger the return, but how much risk do you want to take with such important cash?
Currently, a return of around 3.8% is average for a low-risk savings plan, though this changes frequently, so if you’re looking to invest a large sum of several thousand, a good point of call is an Investment Advisor, either an Independent or from a High-Street bank. They will come and visit you to talk you through your options, and legally they have to give you sound advice.
When making your decision, remember to bare in mind a lot of investment schemes use notice accounts, which means you won’t be able to access the cash immediately.
We’ll be producing another article just on investment advice in the next couple of weeks, so be sure to check that out for more specified advice.
Back to Work.
An increasing number of retirees are choosing to supplement their retirement income with the pay they earn from working couple of days a week. This isn’t just a financial decision. It also provides enjoyment and stimulation that some people feel they lack upon retirement.
In fact, according to a survey by Market Watch 82% of those aged 50 or above believe they will be employed in some measure after they retire.
There are some important things to be aware of if you decide to keep working into your retirement.
You’ll still be taxed in retirement. The State Pension is still considered taxable income, so if it’s combined with the income you earn from working part-time it could push up your income tax bill. Make sure you calculate whether an increase in income will affect you to avoid getting hit with an unexpected tax bill.
You can defer your State Pension. If you’re able to get by using the income from employment combined with another income source, it may be worth considering deferring your State Pension. When you do eventually decide to begin claiming it, you’ll get a lump sum of what you’re owed, plus the Bank of England base interest rate plus an additional 2%. A lump sum like this could be very useful as investment capital.
It’s never too late to start your own business. A lot of people see retirement as a chance to stop working for others and set up their own business. Around a third of those still working beyond State Pension age are self-employed. Remember, if you’re running a small business you’ll need to keep detailed records of all your income and expenditure and report all income to HMRC. Seeking advice from a professional accountant is a good way to start.
– Clearly, there are a lot of options for managing your income during retirement. Most importantly we’d recommend considering what works for your individual situation, and not being seduced by the stories of others who may have totally different situations to your own.
– Professional advice is a great starting point before making the big decisions. It’s easy to get carried away with an idea, but a professional can keep you grounded and give impartial advise on whether your ideas are safe and credible.
– Don’t endlessly debate which income-generating plan to go for. The sooner you get on with your strategy, the sooner you’ll start seeing returns and boosting your income!