“Life in the fast lane” – two top tips for financing retirement
Whilst the title of this well-known song resonates with us, few actually push themselves to the limits in life. That doesn’t mean that we prefer a sedentary life over excitement; it just means that life has a habit of bringing us back to earth. We work to pay the mortgage, to feed the family and to hopefully have enough time left to enjoy ourselves when we retire.
Living life to the full isn’t all about money but it is certainly a big part of it. When we stop working we need to have made sufficient provision to last us for the rest of our lives. Life expectancy tables tell us that a male aged 65 can expect to have a further 18.5 years and a female, a further 20.9 years of life (source: Office for National Statistics – September 2017). So here are two simple ways to do it:
1) Repay debt
Your house is likely to be the most expensive asset you buy and the mortgage you take out by association will be the largest debt. Try to overpay your mortgage. Set the term, subject to affordability, at the shortest you can make it. You will be surprised at how little extra this will cost you to knock years off the repayments. Make sure that the mortgage is cleared before you intend to stop working.
2) Contribute to a pension
Yes we know that this is common knowledge but you will be surprised at how many people do not. Whether this is with your employer using Auto-enrolment or “under your own steam” as a self-employed person, the advantages offered are hard to match.
As an example, if you contribute £80 to a pension, the Government will give you an uplift to your contribution of £20 thus you invest £100 for you in to the pension. If you pay higher rate tax, then you can reclaim a further £20 through your tax return. £100 therefore costs you £60. When you start to draw benefits, 25% of the fund value in the pension is tax free. Usually, the remainder can be withdrawn flexibly so as to give you the level of sustainable income required and when you die, any residue fund can be passed to beneficiaries free of inheritance tax for them to use. What is there not to like?
We may not all be able to live “life in the fast lane” but knowing that we have enough for what will hopefully be the longest holiday of our life will certainly let us try. If you would like to review your current arrangements, please contact Terry Burgum, Financial Planner, at Kreston Reeves Financial Planning here or on +44 (0)330 124 1399.
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