When would you like to retire? Will you be able to? Isn’t that so far in the future you don’t need to worry?
Recently we’ve been doing a personal finance review and while I’d not normally blog about finances, there are some tools around that might be useful to you as well.
Note: I’m not a financial advisor, nothing that follows should be taken as financial advice. These are things we have found helpful, based on the taxation systems in the UK.
Things everyone should do
Keep a budget. If you are someone who struggles with this, then here’s a video which might help or this article and planner by Martin Lewis. Also, if you use Starling Bank as your current account the app categorises your spending into groups to make it easier to keep track of your spending.
Financial MOT. If you’ve not thought about your personal finances recently, I suggest doing this quick survey from Money to the Masses. It will give you some ideas of things you should consider.
National Insurance. If you don’t already have a gov.uk gateway personal tax account it is worth signing up. This makes it easy to look at things like your national insurance record and to file tax returns if you need to. Checking your NI record is important; particularly if you are a mission worker or someone whose situation isn’t just a regular salary payment. There’s no point discovering that you haven’t made enough contributions 10 years before you retire.
Pension contributions. If you are young, or on a tight budget this feels like a luxury. Although auto-enrolment schemes mean most people in work are contributing 8% of salary into a pension, this is probably not enough (a budget of 12% is more likely to be needed). However, the money you put into pensions at an early age makes a really big impact on your retirement (basically due to compound interest) so anything you when you are young is worthwhile.
Keep track of pensions. Most people contribute to several different workplace pensions during their lifetime. Depending on your circumstances and the type of pension scheme it is sometimes easy to merge these (so when you join a new scheme you move all the money from the previous one into it). Two things are important here. First, keep track of them all. Second, if you have an old-style pension which was a defined benefit scheme (ie it paid a percentage of your final salary depending on how many years you worked) it is very unlikely that you would benefit from moving it (and you really need proper advice before doing so).
Things people thinking about retirement planning should do
How much money will we need? is a key retirement planning question. Depending on your income most people will need between 60-80% of their current spending (the lower your income the higher the percentage). The Retirement Living Standards give a range of figures for different standards of living and can be helpful (here). (If you are really interested you can download the excel spreadsheets they use to make up the numbers!). In your planning you might also want to note that (apart from care costs) most retirees spend more money in their 70s than they do in their 80s. But your plans might also want to take into account a period of semi-retirement.
What will my pensions be worth? if you look up the value of your current pensions you can then estimate what they might be worth when you retire, what income they might provide and how much more you need to contribute. One fairly simple calculator to help with this is by Interactive Investor (sipp calculator).
How will I take my pension? traditionally on retirement people took their retirement fund and purchased an annuity (which gives a guaranteed income for life). Today, more and more people keep their fund invested and drawdown an income periodically. Knowing which option you are more likely to chose can make a difference in what funds your pension should be invested in during the last decade before retirement.
The Money Advice Service. The Government has a helpful pension advice website (here) which has a number of calculators and explanations that you can use to work out what you might need to do.
If you are married think about what will happen when one of you dies and the surviving spouse has to live on less income.
The key with all of this is to do some thinking and planning while retirement is still a way off, that way you have time to take action.
Make the most of the tax system. If you are in the UK, you don’t need to be paying tax to pay into a pension plan and get tax relief. The first £2800 you contribute will get tax added. It might be that, in order to make good use of both spouses’ personal allowances in retirement, you need to make sure that both have a pension income and so you need to focus contributions to one partner’s pension.
And don’t be afraid to take advice, even if you have to pay for it. Some pension schemes allow you to take out £500 to pay for advice.
Isn’t this a lack of faith?
Some Christians feel that pension planning is a lack of faith in God’s provision for the future. I disagree. In a similar way to how the apostle Paul encouraged people to work to support themselves and their family, retirement planning is essentially expanding this principle to our context.
What’s more important is how we live our lives and steward the resources God has given us. If you have more than you need, what are you going to do with it? Perhaps you have the resources to retire early and give your time and energy to serving God in a new area.
For those Christians who live by raising their own support, financial planning is part of support raising. Just as people set aside part of the support raised for giving / tithing, good stewardship would set aside a part for retirement savings as well.
Retirement is a modern idea, coming into play as life expectancy increased. For Christians, a life of serving doesn’t have a cut off date, a passion for living for God’s glory doesn’t fade with the passing years. Our financial state, and our physical one may change but that doesn’t remove the need to live by faith.