It is wise to start thinking about retirement options and choices to make two years before the last day at work.
Here is a checklist to ensure that you are all prepared for retirement.
1 – Figure out how much income is needed during retirement
When you retire, you will need a different pattern of spending the income as you may possibly have less money. Prepare yourself for such changes and plan in advance.
Make a retirement budget using the following categories.
- Essential expense – It will cover basic living needs like groceries, utility bills, housing costs, and daily commutes.
- Non-essential spending – It will include things you will like to enjoy typically leisure, holidays, and eating out.
An idea of what income you will need to spend after retirement will be helpful. You can even take help from licensed wealth management and financial advisor like PMW services. They are financial experts.
2 – Determine your possible retirement income
Find out how much money you will have on hand during retirement.
It involves –
- Checking state pension statement.
- Check defined benefit pension.
- Check the annual defined contribution pension pot statement.
- Add the investments and savings that can be used for retirement.
- Trace any lost pension.
3 – Assess income options
Based on your pension you may have to determine how to take the money.
Define benefit pension
A defined benefit pension scheme will start paying guaranteed income from the normal retirement age, which is 60 or 65, so check the scheme. The income amount will depend on your duration of employment and salary scale. The pension can be paid in a lump sum or monthly. If you choose to take a lump sum then you will need to give up some percentage.
Defined contribution pension
You may have built a pot of dollars, which you can start taking from the age of 55. The money can be used in increasing your pension so that you get a lump sum or income during retirement.
Besides, the pension you may have other income sources. They can possibly differ and are not guaranteed for life.
It can be from –
- Savings & investments
- Part-time work
- Pension pot
- Your home
When you work out the amount of money you will need as retirement income and the income sources you have post-retirement then you get a clear idea of whether your retirement will be affordable or not.
4 – Check where you stand and create a retirement plan
You know how much retirement income is needed and even know the amount you will receive from different pensions. You are even aware of when the pensions will start paying a lump sum or an income. So, it is time to make a solid retirement plan.
You will need to consider some things before you jot down the retirement plan.
- Do you plan to retire early?
- Will you need to pay taxes?
- How long will you need retirement income? It can be more than 20 years. If you spend a lot in the early retirement phase then you may not have sufficient in life later.
- Will you have debts cleared before retirement?
If you feel overwhelmed then take help from a professional and regulated financial advisor.