Deciding when to retire is one of the most important and difficult decisions any of us will make during our lifetime. The prospect of being able to spend more of your time pursuing your passions and interests is an attractive thought, whilst, simultaneously, the fact you will no longer have the purpose and routine of working life can often be a strange, sometimes daunting prospect.
For many, the last few years of their working life is when they will have reached their highest earnings potential and can afford to save more towards their retirement, meaning knowing when best to step away from your law firm is a difficult conundrum.
For those thinking of retiring, there are a number of factors to consider, and steps to take prior to retirement. Below we have listed some of the key consideration for partners and directors thinking of retiring:
Final pension contributions
For many, this will be the last opportunity that they have to make pension contributions, either personally or through the firm, meaning it is worthwhile reviewing your pensions to see if there is scope for further contributions. This can include using your contribution allowance for this year and also making use of any potential ‘carry forward’ allowances that you may have from the previous three tax years. If there is the option of making further contributions, it would be worth considering this to ensure you have the maximum possible pension pot in place.
Have you checked your State Pension entitlement?
In many cases, the State Pension will be the largest source of guaranteed income in retirement. The amount of State Pension you will receive is dependent on your National Insurance record, and to receive a full State Pension now requires 35 years of qualifying years’ contributions. It is possible to request a State Pension forecast through the www.gov.uk website using your Government Gateway login details, or alternatively through the post by completing a BH19 form, which is available on www.gov.uk. For those who have an incomplete National Insurance record and are not entitled to a full State Pension it is often possible to make voluntary, Class 3 National Insurance contributions to increase their State Pension entitlement.
Track down old pensions
You may have pensions in place from previous employments, and life has meant you have not got around to dealing with these – well, now is the time! A quick call to your pension provider should provide you with the value of these and what option you have. For some, it may be worthwhile consolidating these into other pensions you may have, though there are a number of things to consider with this. If you are unsure whether you have old pensions in place, there is a government website to help with tracking down former pension schemes: www.gov.uk/find-pension-contact-details.
Budgeting / cash flow modelling
Often the most difficult part of retiring is determining how much income we will need in retirement and whether or not we have sufficient funds put aside to fund our retirement. Whilst this is an almost impossible question to answer, due to the number of unknown variables e.g. life expectancy, inflation, investments returns etc., it is important to give this proper thought and have a plan in place. Writing a summary of income, expenditure, assets and liabilities, or documenting this in a spreadsheet, can really help in getting a handle on your retirement position.
For those wishing for something a little more detailed, there are a number of cash flow modelling tools available, which allow you to plot your current and future financial position. The software allows you to ‘stress test’ your retirement plans under various scenarios, such as needing care, increased expenditure or lower than expected investment growth rates. Whilst the software will not answer the question of whether retirement is affordable, it will ensure you are as well informed as possible, prior to taking that step!
Should you wish to discuss your retirement planning, please contact one of our independent financial advisers at 01242 680000.