As we progress through 2024, many of us are prioritising various financial goals, and retirement planning may be at the top of your list this year.
Understanding how to optimise your savings is essential for protecting your financial future. Keep reading to discover our top retirement planning tips for 2024.
Saving for retirement in the UK
1. Set your retirement goals
If you’re yet to plan out your finances for when you retire, starting now can give you a much better idea of the funds required for a comfortable retirement. From there, you can adjust your strategy to ensure you save and invest enough to meet your needs.
You’ll need to consider various living expenses when calculating your retirement budget. This should include:
- housing costs (such as council tax and mortgage payments)
- utility bills
- healthcare expenses
- life insurance policies
- luxury and recreational costs (holidays, pursuing hobbies)
- the cost of maintaining assets such as rental properties or other investments.
The list above is not exhaustive, so think about the retirement lifestyle you want to maintain and ensure that you factor in any fixed and variable costs you may incur. Perhaps you want to put funds aside to help your children or grandchildren onto the property ladder, or maybe you have plans to travel in your later years.
It’s important to account for all future expenses – not just the bare minimum. Establishing an emergency fund, for example, can give you greater peace of mind in case of unexpected illness or life events.
2. Set a savings timeline
Establish a realistic timeline for your retirement, including key milestones such as when you plan to reduce working hours or fully retire. Take stock of your existing retirement savings, including pensions, ISAs and other investments.
This assessment can give you a starting point from which you can grow your savings, helping you forecast how much you need to save by age 40, 50 and 60. With clear milestones in place, you’ll be able to monitor your progress and make adjustments to your savings strategy as needed.
3. Optimise your pension contributions
Paying into workplace and private pensions can help you secure your financial future in a tax-efficient way.
While many individuals decide to pay into their pension pot monthly, you can invest larger sums into a private pension plan. However, it’s important to understand the rules surrounding pension contributions.
The pension annual allowance, for example, means that savers can currently only receive tax relief on pension contributions up to £60,000 a year. This amount is reduced for high earners or those who have already started drawing a pension.
You should also think about how you plan to take your pension. Most pension scheme providers allow members to withdraw up to 25% of their total fund as a tax-free lump sum.
After that, you will typically have six months to start withdrawing the remaining 75% of your pension fund, which may be subject to income tax.
4. Develop an investment strategy
Pensions are not the only retirement planning tool at your disposal. Developing a robust investment strategy can also be instrumental in saving for retirement.
If you want to establish an investment portfolio, the right approach will depend on various factors including your unique financial situation, retirement goals and appetite for risk. Some assets like property often offer longer-term rewards, while diversification can help mitigate potential losses.
However, even investments that are generally considered safe can carry risks, so you should always speak to a professional before investing.
You should also ensure that you use your £20,000 ISA allowance before the end of the 2023/24 tax year. There are several different ISA options available, so think carefully about whether you’re planning to save or invest.
5. Refine and review your retirement strategy
Your financial situation and retirement goals may evolve over time. If you already have a retirement plan in place, it’s crucial to schedule annual reviews. This can allow you to make necessary adjustments in response to life changes, market conditions or shifts in your retirement vision.
We’d also recommend enlisting the support of financial professionals. At Pearson May, we provide personalised advice and help you navigate complex financial decisions. We’ll put your personal financial needs first, helping you develop a retirement plan that is robust, tax-efficient, and aligned with your long-term objectives.
Contact Pearson May today to speak to a financial expert. With us on your side, you can protect your wealth and set yourself up for a comfortable retirement.