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Planning Retirement Online

 

Difficulties of Retirement Planning

 

The Difficulties of Planning

Retirement PlanningUnlike other countries, a great deal of the responsibility for pension provision has transferred from the State and onto the Employer / Individual. This has been encouraged by offering tax relief to the Employer / Individual to make payments into an “approved‟ pension arrangement of one form or another.

However, even though the Basic State Pension is considered to be amongst the least generous in the developed world, a combination of an ageing population, increased life expectancy and declining fertility rates means that the UK State Pension System is experiencing significant strain and is unlikely to remain viable in its current form in the long run.

As the population ages, the number of people reaching age 65 each year is growing. In 2010 17% of the population was 65 or over, by 2035 it is forecast to be 23%. Retirees are also facing the greatest retirement challenges ever seen: retirement has never been longer and the very notion of retirement is changing. Indeed, there is national political debate around the future nature of retirement and issues such as how our society expects to pay for long term care.

While there is a growing emphasis on individual responsibility, few of us have the knowledge or experience necessary to adequately plan for retirement without professional assistance. It is a complex task and the sheer number of issues that need to be thought about are daunting.

We are faced with the possibility of making uninformed decisions about how much to save, how to cope with constantly changing pension rules, where to invest, what are interest rates and inflation rates likely to do in the long term, what will the impact of ever increasing longevity be on annuity rates, as well as making assumptions about our future health, our target retirement income and the future needs of our dependants.

Planning is extremely difficult when there are so many variables involved. As most of them are also impossible to predict, it will also be uncertain. In addition, the long time periods that are involved in both the accumulation of a pension pot and decumulation as it is paid out as a pension have the effect of magnifying the margins of error.
Financial decisions in respect of retirement have always been difficult for people to get right; they also have a very significant and lasting effect on the quality of people's retirement. The accumulation phase is crucial to income in retirement. Without it there are no pension decisions to make at retirement.

Planning and advice must start well in advance of retirement and will need to continue on an on-going basis as inflation, investment returns, state of health, expectations and other factors come to bear.

Saving for retirement is not a precise science. It is more about planning for a period of time when income may fall and may need to be supplemented not only with pension income, but other savings as well. In fact, it may be financially sensible for some not to draw on pension income until well beyond statutory retirement.

Whether through a pension or other investment vehicle, there is a period of time, sometimes up to 40 years or more, where assets are accumulated in order to build up a 'pot' that will hopefully see the investor through retirement. The tax benefits of a pension are such that the majority of this pot will for most people accumulate in some form of a “pensions wrapper”.

The net effect of this complexity is that, for most people planning their retirement income, it is going to be essential to obtain advice from a financial adviser. The financial implications of the decision-making involved are more far reaching than any other financial decisions they are likely to have in their life.

 

NEXT STEPS

If you've done your initial retirement planning then use our checklist: on a regular basis:
Reviewing Projected Retirement income - Checklist

However if you feel that you need some help from a financial advisor, then visit our section on obtaining financial advice, or our page on Laterlife selected services and associated advice.

 

 
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