Five retirement saving ideas if you started late

Most financial experts recommend starting your retirement savings in your 20s, but it’s not a perfect world and lots of people don’t think about it until later on.

There’s no need to worry however, as there are still ways you can start planning sensibly for the years when you no longer want to work. Here are some tips for living comfortably after retirement.

  1. Work out how much you’ll need to retire

Many people don’t really understand the amount they’ll need to have a truly comfortable retirement. In general, comfort is inextricably linked to the lifestyle you’ve been accustomed to, and as your income is likely to fall, you need to work out ways to make up the difference.

Calculate how much you pay out every month now, and estimate the likely outgoings when you retire. The idea is to figure out how much you need to save as a proportion of your salary. Take into account that your bills will be different in 30 years. For example, you may no longer be paying your mortgage but your energy bills will be higher.

List what your expenses are likely to be, and think about where you’re likely to be living. When you have this information, then you can calculate a rough amount that you’ll need. This is obviously based on today’s prices, but will give you an income goal to keep in mind.

  1. When are you likely to retire?

Perhaps you’re planning to retire when your state pension starts – this has just been increased by the government to 68 and is likely to continue increasing over the years.

However, if you’re fit and well at retirement age perhaps you may not want to retire. You don’t have to collect the state pension straight away. Since April 2011, it’s been illegal for your employer to fire you when you are at state retirement age so, you are legally entitled to stay in your job for as long as you want to, giving you more time to build up your retirement pot.

It’s a good idea to retire later if you can, as it means you’ll be more likely to maintain the quality of life that you want for longer. If you defer receiving your state pension, when you do decide to take it you will get this money in a lump sum, or as additional money on top of your regular payment.

  1. How much do you already have?

You may have some pensions from previous employers, which should be checked and transferred in some cases. Decide also what to do with any savings or investments you already have. You can either leave the money where it is, or pay the extra into your pension. You can pay up to your salary amount or £40,000 a year (if your salary is less than this) into your pension. You can also claim income tax relief on this amount.

Pay any debts you have if you can. If you pay off expensive overdraft debt or credit card bills you will free money to pay into your pension in the long term. It can be worth taking the hit now for the chance of saving more later. If you have lots of credit cards then transfer on to a 0% balance card, and keep shifting it to new ones as you pay off.

Also think about your mortgage and whether you can reduce it or, better still, clear it before retirement. Taking action on all of these smaller things will help in the future.

  1. Start a pension now

Saving into a pension scheme is worthwhile as it’s tax free, due to your contributions coming straight from your wages. Add yours to your employer contributions and you can save more than you would with other kinds of plans, such as ISAs or other investment products.

You should save as much as you can into a pension. It’s worth taking a hard look at your finances and work out a budget to allow to pay the maximum possible into your pension. To illustrate the difference even a bit of money can make, if you pay an extra £50 into your pension every month then that adds up to an extra £16,200 into your pot over 27 years.

  1. Use your property to fund retirement

This is becoming more common, due in part to the massive price increases there have been in property over the last few decades. Many homeowners found themselves sitting on a far larger amount than they anticipated when they bought their house.

For example, the average house price in 1990 was roughly £68,500. In 2017, it’s £218,000 – that’s an increase of 300%. However, there is absolutely no guarantee that property will perform well in the future, particularly with the increasingly unclear picture caused by the withdrawal from the EU.

You can either downsize – sell your property and move somewhere smaller on retirement, leaving you with some money to fund your retirement – or take out a ‘lifetime’ mortgage, which is an equity release scheme on the house you live in. However, both will impact the amount you’re able to leave behind for any dependents.

Whatever you’re thinking about for your pension fund, it’s always worth taking professional financial advice before making any major decisions.

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What is a ‘power of attorney’?

While you may not want to think about a time when you can’t make decisions for yourself, it’s best to be prepared. That’s where power of attorney comes in.

A power of attorney is a legally endorsed document that gives someone else the right to make decisions for you. They can act on your behalf if you either no longer want to make your own decisions, or can no longer do so.

There are various reasons why this might be something you choose, ranging from a long stint in hospital where you want to make sure your affairs are taken care of, or a diagnosis of something like dementia that means at some point in the future you won’t be able to make your own decisions. This is known as not having ‘mental capacity’ to make your own decisions.

What does mental capacity cover?

It means the ability to make decisions when they need to be made. People need to fully understand the decision they’re making and why. Some people will be able to make decisions about simple things (what to watch on TV) but don’t have the mental capacity to understand the ramifications of financial decisions.

Typical decisions that are impeded by lack of mental capacity include financial decisions – on things like paying mortgages, investing savings or buying things, and health decisions – what kind of treatment you might need.

There are different kinds of power of attorney:

  • Ordinary power of attorney.
  • Lasting power of attorney.
  • Enduring power of attorney.

Ordinary power of attorney

This is a legal document that means one or more people (known as the ‘attorney’), can make financial decisions on your behalf. It is only valid while you retain mental capacity to make decisions. So, this could cover periods where you need someone to act for your interests while you’re incapacitated in hospital, for example.

Other times you may want to use this is when you can’t get to the bank and want someone else to be able to access your account for you, or you want someone to act for you while you’re there to see what they do.

It can be limited, so that the attorney can only deal with some of your assets. For example, they could have access to your bank accounts but not your mortgage account. If you want to make sure there is someone to make decisions for you in the event that you no longer have the mental capacity to do so, then you should think about setting up a lasting power of attorney.

Lasting power of attorney (LPA)

An LPA gives someone you trust the legally endorsed authority to act on your behalf if and when you can no longer do so for yourself. If you lose mental capacity they will step in and look after your affairs.

There are two different kinds of LPA, one for financial business and one for health and care.

An LPA for financial decisions covers investments, paying your mortgage, buying and selling property, paying bills and sorting our repairs on property. You can have an LPA for financial decisions if you still have mental capacity, or you can state in the document that you only want to have an LPA if you lose mental capacity. You can limit their decisions making or allow them to make decisions on everything.

An LPA for health and care can only be in force when you have lost mental capacity. It covers decisions on things like where you should live, what kind of medical care you should receive, the food you eat, what kind of activities you do and the people you interact with. Special permission can also be given to the attorney about what kind of life saving treatment you should have.

It’s important to realise that just because you’re in a civil partnership or married, this doesn’t give your partner the legal ability to sort these things out for you. They still need an LPA to make it legal.

Enduring power of attorney (EPA)

These were replaced by LPAs in 2007, but if you signed one before then it’s still valid. If you do have one, it’s best to check it out and make sure that everything you want is covered. It may be best to instruct your solicitor to set up an LPA depending on your needs.

How to set up a power of attorney

It depends which kind you want to set up. An ordinary power of attorney is the most straight forward. You can sort this out by contacting Citizen’s Advice or a solicitor and obtaining the standard wording you need.

To set up an LPA, it’s more complicated and involves getting the correct forms and information pack from the Office of the Public Guardian. You can also get your solicitor to do it for you, although you don’t have to.

Once the forms have been filled out you need to get the LPA signed by a certificate provider, which confirms that you weren’t put under any pressure to make it. It has to be someone you know well, or a professional like your doctor or solicitor. The LPA then needs to be registered by the Office of the Public Guardian. There is a fee, and it won’t be valid until it’s registered.

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