Are you making the most of your retirement savings?

This cost of living crisis isn’t easy for any of us. But if you’re retired and relying on your pension savings to fund your lifestyle, you might be wondering if your income will continue to provide what you need, or if you need your money to work harder.

A December 2022 report by Standard Life highlights some of the challenges people aged 65 and over are facing.

  • 45% don't feel positive about their financial situation.
  • 41% worry they're spending too much now, and might run out of money in the future.
  • 85% hope for certainty of income in retirement.

After years of working hard and building up your finances, retirement should be a period of your life where you feel confident about the money you've saved.

With this in mind, here are my seven tips for how you could get your money working harder in retirement.

1. Better understand what you need from your money

Most people will agree that the aim of retirement should be to do what you want, when you want. To have the freedom to put your family first, go on more holidays, and devote more time to your hobbies and interests.

Sounds great. But your retirement goals are only achievable if you have the finances to make it work.

In a nutshell, you need to be thinking about:

  • The fun stuff, like more holidays or fulfilling a lifelong dream
  • The regular stuff, like paying your bills and enjoying your free time
  • The important stuff, like the provisions for any later life needs, such as long-term care.

It sounds difficult to work out doesn't it? But with a bit of expert help, you might be able to feel more confident you have the plans you need.

2. Remember that life is always changing - and so will your financial needs

Latest average life expectancy figures from the Office for National Statistics show that a 65-year-old man will on average live until they're 83. Meanwhile, a 65-year-old woman will on average live to see 86.

That's a long time when you think about it. Most of us are likely to see all sorts of changes in our circumstances across retirement.

There's no set model, but many people experience three different stages in retirement.

  1. In the early years, when you're more likely to be fit and healthy, you may live a more active life of holidays and hobbies. And you may spend quite a bit of money.
  2. As you get older, you might settle into a more regular lifestyle and need less income. So you don't use as much money.
  3. At other points you may have periods of bigger expenses. Perhaps if your situation was to change, or if you need some healthcare or assisted living support.

The point is what you're typically spending right now might look very different in the future. So it can really help to have an adaptable strategy with your money.

Did you know?

At Skipton Building Society, we use something called a cashflow planning tool. The tool helps you to visualise your retirement and allows you to see how long your savings, investments and pensions will last compared to your desired retirement income.

It also looks at different scenarios that might happen in the future. So you can check your ability to manage any change in financial priorities.

No one can predict the future. But we can help you prepare for whatever might lie ahead.

3. Consider how you’re using your pension for an income

Since 2015, the pension freedoms have given many of us a lot more control in how we use our pension savings to fund retirement.

Less people are purchasing a guaranteed income for life through an annuity and instead leaving their pension savings invested and using them for an income.

The increased flexibility for individuals is a great thing and a significant improvement on those previously in place – there are important considerations too.

Important information

  • Up to 25% is tax-free to withdraw. With the rest, you can pay tax in line with current income tax rates.
  • There's a risk you could use up your pot of money too quickly.
  • It might not be invested in the right way for your needs.

The decisions you make with your pension are so important to your future, which is where we could help. Take a look at our already retired guide for more information.

4. Don’t look at your pension as your only option

This might sound strange, but you don’t have to use your pension for a retirement income. If you have other savings and investments, it might be better to use them instead.

  • There usually won’t be tax to pay on withdrawing/taking an income from your regular savings and investments. Although other restrictions might apply.
  • If you die before you’re 75, in most circumstances your family (or chosen beneficiaries) can inherit your pension fund tax-free. Other savings and investments might be subject to inheritance tax.
  • If you die after 75, they will only have to pay tax at their marginal income tax rates when they access the monies from the inherited pension.

Using your savings and investments to fund your lifestyle, instead of your pension, could save you tax right now.

5. If you’re feeling fit and healthy and you have the time, ‘unretiring’ might be worth considering

Unretiring means returning to the world of work in some way, such as taking on a part-time job. It’s a way of boosting your overall finances.

The government is encouraging this. In the March 2023 Budget, Chancellor Jeremy Hunt announced changes to make it more attractive for retirees to pay into a pension. It’s all about something called the Money Purchase Annual Allowance (MPAA) – and it could help you.

Three things to know about the MPAA:

  • The MPAA is the maximum you can pay into a pension each year, after tax relief, when you start to access the taxable element of your defined contribution pension.
  • It was £4,000 gross a year but is now £10,000.
  • So if you’ve started using your pension, you can now pay up to £10,000 a year into it and benefit from tax relief.

Even after you’ve retired, there are good reasons why you might want to do some form of paid work. It can give you a sense of purpose, help you to meet and make new friends – and learn new skills.

Now, there are extra financial benefits for unretiring to boost your pension savings.

6. Plan to leave a stronger legacy

I know this isn’t an easy area to consider. But when your time comes, you’ll no doubt want to be able to leave behind a strong legacy for your loved ones. And clear wishes about their inheritance.

This includes thinking about:

  • Having an up to date Will in place (it’s a good idea to review yours every few years)
  • Power of Attorney (in case you one day need a trusted loved one to make decisions for you)
  • If you have, or in future may have, an inheritance tax liability

It’s not about locking down your money now, so you leave as much as possible behind. There might be ways of growing your wealth now – so you can boost your lifestyle, and build a stronger legacy with Inheritance Tax Planning.

7. Financial advice could make a real difference to your retirement

You’ve worked hard over your life to get to where you are. So you deserve to be able to enjoy retirement.

That’s where we come in. Our financial advisers are here to help you look after your financial plans and see if you could get your money working harder.

  • Recommendations personalised to you.
  • No upfront fees. You only pay a charge if you act on advice.
  • No pressure to take up our advice – that’s a promise.

Important information

  • Investing does mean placing your money at risk. You also need to be willing to commit your money for at least five years.
  • The tax treatment of savings, investments and pensions depends on personal circumstances. Tax rules may change in the future.
  • Our financial advice service is available if you can invest or reinvest at least £20,000, or can commit to investing at least £500 per month. If you’d like advice on your current investments/pensions, the minimum value required is £50,000 (cash and value reviewed).
  • The opinions and information provided in this article are not advice. If you are looking for advice, you should speak to a financial or tax adviser.

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