Retirement Planning Tips – Financial Freedom in Retirement

When you come to the end of your working life, ideally, you’ll be ‘financially free’. This basically means that you won’t have to look for other sources of income, and you’ll be free to do everything you want with your retirement without being encumbered.

But how does a person arrive at retirement age with their finances ready? Let’s take a look at the situation.

Assessing Your Financial Situation

Your first priority should be to review your finances as they currently are. Get everything down on paper, including all of your pensions, savings, and investments. Then factor in your liabilities. How much will you be paying in rent or mortgage payments between now and your retirement? How much money do you need to be able to pay yourself to maintain your current standard of living? Once everything is factored in, you’ll know how much you can put toward retirement each month.

Creating a Retirement Budget

Your next step is to create a realistic budget for your retirement. How much do you need to cover the cost of living, healthcare, and leisure? If you have a passion for a particular pastime, like gardening, are you going to have enough money to sustain it throughout your retirement?

What matters here is flexibility. Your circumstances are almost sure to change in unexpected ways, and your budget will need to be adjusted accordingly.

Maximising Pension Benefits

You might be able to bolster your pension pot by checking for gaps in your state pension, and making voluntary contributions to cover them. You might also look to delay your pension withdrawals to maximise the interest, or look for annuities or drawdown. Annuities take the money from your pension fund at once; drawdown involves taking many regular payments, and thereby allowing the fund to keep growing throughout your retirement.

Diversifying Your Investments

If you put all of your eggs into a single basket, then you’re exposing yourself to considerable risk. This is why putting all of your retirement savings into a single asset, or sector, is rarely a good idea. Tech might seem promising, but what if there’s a sudden collapse in the market?

This is why it’s worth diversifying your investment portfolio. You’ll spread the risk, and ultimately enjoy a superior return. Think about how much risk you’re prepared to take, and exactly how much money you really need. If there’s no benefit to a gamble, then it’s worth playing it as safe as possible.

Leveraging Property Value

If you own property, then you can leverage it to generate a retirement income. You might rent out a part of your home, or a second property. Alternatively, you might downsize, and pocket the difference between the sale price of your old house and the purchase price of your new one.
If you’re considering accessing the value tied up in your home, an equity release calculator could help you understand how much money you could potentially unlock, providing a useful financial boost in retirement.

Planning for Healthcare Costs

One major unknown factor to consider is healthcare. You probably don’t know how your health is going to deteriorate in the years to come. Set aside funds specifically for healthcare purposes, and look at private health insurance, if you can afford it.