Retirement Planning Traps To Avoid


An article published by Charles Stanley Wealth Managers highlights eight retirement planning traps and how to avoid them. It points out that while there have never been more options in terms of retirement planning, arguably there have never been greater challenges.

1. Not reviewing your pensions
It is important to review your pension situation regularly. If you find you have a shortfall, you may still be able to take steps to increase the chances that your pension pot will be able to achieve the income you want when you retire. The Money Advice Service has a useful pension calculator, which can assist in your planning.

2. Underestimating life expectancy
Many people underestimate the length of their retirement. On average, people aged 55 today will live to their mid-to-late 80s, but around 1 in 10 men and 1 in 5 women this age will live to 100. So if you are retiring at 65 and you are in good health, you should really be planning for up to 35 years.

3. Underestimating the cost of living
Everyone’s circumstances, needs and desires in retirement are different but, with lots of extra free time on your hands, it may be that you need more money than you think. Remember too that income is needed for your whole lifetime, and a lot can change.

4. Overestimating investment returns
In the past few decades, an environment of decent economic growth and falling interest rates has provided a fair wind for most investments. Despite some notable hiccups such as the dot-com bubble and the global financial crisis in 2008, bonds, equities and property have all delivered reasonable returns, although past performance is no guarantee of future returns.

Going forward, the economic outlook could be entirely different.

5. Believing your home is your pension
Some people take comfort in the fact that they have built up equity in their home and therefore have the option of downsizing should they need to. However, as well as any tax consequences, you need to consider how much income this can realistically generate.

6. Not assessing all your retirement options
When you are approaching retirement you have lots of decisions to make, not least how to convert your pension pot into retirement income. Whether you choose to buy an annuity, draw an income from your pension investments via drawdown or a combination of the two, it is worth spending time assessing all the options to make sure you are selecting an appropriate route. If you are uncertain as to which option or options are suitable you should seek professional financial advice.

7. Paying more tax than necessary
Under current rules, once you reach normal retirement age you can normally take a money purchase pension pot as cash in one go. However, 75% of this sum is taxable under current rules and added to other income in the tax year it is received, so it could push you into a higher income tax band.

You can ‘phase’ your pension in retirement by taking both the 25% tax-free lump sum and taxable income in stages. Spreading withdrawals over more than one tax year in this way can mean you make the most of tax allowances and avoid paying more tax than necessary.

8. Falling victim to a scam
According to the Financial Conduct Authority (FCA), nearly a fifth of over 55s and a third of over 75s believe they have been targeted by an investment scam in the last three years. The ability to take a money purchase pension pot as cash in one go means that people with this type of pension could be particular targets for fraudsters.

To guard against being a victim of investment fraud, the FCA advises consumers to, at the very least:

  • Reject unsolicited contact about investments
  • Before investing, check the FCA Register to see if the firm or individual you are dealing with is authorised and check the FCA Warning List of firms to avoid
  • Get impartial advice before investing

Redwood Financial is one of the souths leading Pensions, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of pension and financial wealth planning, we can advise on any situation. Join us at one of our Free Public Information Seminars: Book online Book Me A Place!,Call us on 01489877 547 or Email info@redwoodfinancial.co.uk to book a FREE Initial Meeting with us to review your financial planning needs.

You can read the full article by Charles Stanley Wealth management at Charles Stanley Wealth Management

Jasmine Lambert Chartered Financial Planner
Jasmine Lambert

Jasmine is the Managing Director and a Chartered Senior Financial Planner at Redwood Financial. She helps clients manage and grow their wealth and protect their estate. Jasmine also provides expert advice in our FREE Redwood Webinars, where you can learn more about Wills, Trusts and Estate Planning.

Redwood Financial is one of the south’s leading Investments, Pensions, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning, Lasting Powers of Attorney, Probate, Pensions, Savings & Investments, we can advise on any situation.
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